Northern Technologies International Corporation Q2 FY2026 earnings call

• Second quarter performance was driven by solid top-line growth across businesses, including record second quarter Xeris oil and gas net sales. - Continued strength at NTSC China despite Lunar New Year seasonal impact. - Achieved solid quarter of NatureTech growth. - Resilience of business model and increasing value customers place on corrosion prevention and compostable plastic solutions. - Monitored European markets for stabilization post subdued demand, expecting economic recovery from stimulus packages to impact joint venture operating income. - NTIC China's strong demand with limited exposure to US tariffs, expected to continue improving in fiscal 2026. - Highlighted three-year contract with leading global EPC company for Xeros oil and gas project. - Pursuing larger opportunities in North America and India for NatureTech solutions. - Acknowledged hard work of global team of employees and joint venture partners.

For the second quarter ended February 28, 2026, total consolidated net sales increased 15.3% to $22 million. Xeris oil and gas net sales increased 72.1% to $2.7 million. Xeris industrial net sales increased 11.2%. NatureTech net sales increased 8.1% to $5.4 million. Joint venture net sales increased 18.6% to $23.5 million. NTIC China net sales increased 18.5% to $4.4 million. Xerost Oil and Gas sales were a second quarter record at $2.7 million, up 72.1% year-over-year. NatureTech bioplastics business had second quarter sales of $5.4 million, up 8.1% year-over-year.

• Expect continued sales growth and improved profitability in fiscal 2026 second half, supported by stable trends in North America and ongoing strength in NTC China, Cirrus Oil & Gas, and NatureTech. - Expect gross margin to improve sequentially during fiscal 2026. - Expect quarterly sales to grow faster than operating expenses as leverage recent investments. - Expect revenue growth to increase and translate to improved profitability supported by operating leverage, disciplined expense management, and focus on working capital efficiencies and debt reduction.

• Macro environment uncertainties including geopolitical tensions in Middle East, ongoing supply chain pressures, and continued challenges in European economy. - Fluctuating input prices for NatureTech, impact of tariffs. - Potential impact of energy prices and raw material price increases on oil and gas and related products in future quarters. - Uncertainty regarding the impact of the war in the Middle East on regional demand, supply chains, and raw material availability.

Q: Timothy Clarkson asked about investments made over the last year and if they're worthwhile, and about China's performance, R&D spending, and net income goal.

A: Discussed long-term and short-term investments like hiring, new subsidiary in UAE, facility improvements, SAP system. China's strong demand with focus on domestic consumption. R&D spending on nature tech food packaging. Net income goal considering joint venture income.

Q: Jake Patterson asked about gross margin, impact of supplier issues on ZRUS2, and Middle East contribution to oil and gas revenue.

A: NatureTech gross margin volatility due to input prices and tariffs. Supplier issue carryover from Q1 to Q2. Middle East oil and gas revenue growth from localized opportunities.

Q: Gus Richard asked about impact of war, passing on input price increases, operating leverage, and balance sheet cash decline.

A: War impact on regional demand, supply chains, and raw materials. Ability to pass on input price increases by monitoring and explaining. Operating leverage from increasing revenue and backlog expectations. Plan to increase earnings, manage investments, and reduce debt.