Northern Technologies International Corporation Q3 FY2025 earnings call

• CEO Patrick Lynch noted consolidated net sales growth despite global economic uncertainty, with gross margin reaching 38.4%, an increase sequentially and year-over-year. - Macroeconomic pressures in Europe impacted joint venture profitability, while investments in the oil and gas business led to higher operating expenses. - Anticipates improvements in the fourth quarter and continued progress in fiscal 2026. - NTSC China's net sales continued to improve with a 27.4% increase. - Monitoring European markets for stabilization and expecting positive impacts from economic stimulus packages on joint venture operating income. - ZERUST Oil and Gas is investing in sales teams for future growth, with trailing twelve-month sales up 15.4%. - Natur Tec sales declined year-over-year but rebounded sequentially by 16.5%, and there's a project in compostable plastics addressing water vapor transmission rate issue with potential for future revenues.

For the third quarter ended 05/31/2025, total consolidated net sales increased 4% to $21,500,000 compared to the third quarter of last fiscal year. Xero's Industrial saw a 7.1% increase in net sales. ZERUST Oil and Gas net sales decreased 5.3%, while Natur Tec net sales decreased 1.2%. Joint venture net sales for the fiscal 2025 third quarter decreased year-over-year by 12.9% to $2,300,000. NTSC China's net sales increased by 27.4% to $4,500,000 in the fiscal 2025 third quarter. ZERUST Oil and Gas trailing twelve-month net sales were $8,600,000, a 15.4% increase from the prior year. Natur Tec sales were $5,800,000, a 1.2% year-over-year decline but a 16.5% sequential increase from the second quarter.

• Expect improvements in the fourth quarter of fiscal 2025 and continued progress in fiscal 2026. - Reducing debt through positive operating cash flow and improving working capital efficiencies is a strategic focus for fiscal 2025 remaining and fiscal 2026. - Anticipate ZERUST Oil and Gas sales to improve sequentially in the fourth quarter of fiscal 2025 and significantly in fiscal 2026. - The compostable plastics project has potential for significant sales in the next two years if successful.

• Macroeconomic pressures, especially in Europe, weighing on joint venture profitability. - High energy prices and regional economic pressures in Europe impacting joint venture sales. - Uncertainty related to US trade and economic policies affecting global supply chains. - Higher operating expenses from investments in the oil and gas business.

Q: Timothy Clarkson asked about the improvement in the quarter, profitability breakdown, cost of sales effort for oil and gas, profitability of NTSC China, electric cars and corrosion technology, and new developments in compostable products.

A: Patrick Lynch and Matt Wolsfeld responded, discussing personnel investment in oil and gas sales, NTSC China's profitability, electric cars' impact on corrosion needs, and a compostable project addressing water vapor transmission rate issue with potential for future revenues.

Q: Gus Richard inquired about gross margin drivers, hiring for oil and gas, and large opportunities for Natur Tec.

A: Patrick Lynch and Matt Wolsfeld explained gross margin improvement as a combination of factors, hiring for broader geographies and new applications in oil and gas, and details on the compostable plastics project with potential size and timing.