10-Q: Northern Technologies International Corporation Reports Q2 2025 Results: Sales Dip, ERC Payment Boosts Income

Northern Technologies International Corporation's Q2 2025 net sales decreased by 8.5%, though a one-time Employee Retention Credit payment partially offset the decline in net income.

Summary

• Northern Technologies International Corporation (NTIC) reported a decrease in net sales for the three and six months ended February 28, 2025.
• Net sales decreased by 8.5% to $19.07 million for the quarter and 1.5% to $40.41 million for the six-month period, primarily due to lower ZERUST product sales.
• Cost of goods sold as a percentage of net sales increased to 64.4% for the quarter and 63.0% for the six-month period due to higher raw material prices.
• Equity in income from joint ventures decreased by 47.3% to $620,730 for the quarter and 23.2% to $1.75 million for the six-month period.
• Operating expenses increased by 2.4% to $8.82 million for the quarter and 8.1% to $18.29 million for the six-month period, driven by investments in ZERUST oil and gas sales infrastructure.
• The company recognized $1.14 million in other income during the quarter and six-month period due to an Employee Retention Credit (ERC) payment.
• Net income attributable to NTIC was $434,319, or $0.04 per diluted share, for the quarter and $995,410, or $0.10 per diluted share, for the six-month period.
• The Board of Directors has temporarily adjusted the quarterly dividend to $0.01 per share effective with its fiscal 2025 third quarter dividend.
• The company's Credit Facility with JPMorgan Chase Bank, N.A. was amended to extend the maturity date to January 5, 2026, reduce availability to $8.0 million, and increase the applicable margin for Adjusted SOFR Rate advances.

Sentiment

Score: 5

Explanation: The report presents mixed results, with decreased sales and income offset by a one-time ERC payment. The outlook is cautious due to ongoing economic uncertainties.

Positives

• The company received $1.14 million in Employee Retention Credits (ERC), boosting other income.
• Natur-Tec sales increased 4.1% to $10,822,639 during the six months ended February 28, 2025 compared to $10,400,373 during the six months ended February 29, 2024.
• The company was in compliance with all covenants under the Credit Agreement as of February 28, 2025.

Negatives

• NTIC's consolidated net sales decreased by 8.5% and 1.5% for the three and six months ended February 28, 2025, respectively.
• ZERUST sales decreased, particularly in the oil and gas sector.
• Cost of goods sold as a percentage of net sales increased to 64.4% and 63.0% for the three and six months ended February 28, 2025, respectively, due to higher raw material prices.
• Equity in income from joint ventures decreased by 47.3% and 23.2% for the three and six months ended February 28, 2025, respectively.
• Net income attributable to NTIC decreased to $434,319, or $0.04 per diluted share, for the quarter and $995,410, or $0.10 per diluted share, for the six months ended February 28, 2025.

Risks

• The company's performance is subject to fluctuations in foreign currency exchange rates.
• The company is exposed to commodity price changes, particularly in plastic and bioplastic resins.
• The company's sales of ZERUST products and services to the oil and gas industry are subject to significant volatility.
• The company's earnings are subject to quarterly fluctuations due to the financial performance of its subsidiaries and joint ventures.
• The company's future performance is subject to various risks and uncertainties, including economic conditions, competition, and regulatory changes.

Future Outlook

NTIC anticipates that its earnings will continue to be adversely affected to some extent by inflation and worldwide supply chain disruptions, among other factors, and that its quarterly net income will continue to remain subject to significant volatility.

Management Comments

• NTIC believes there is some seasonality in its business.
• NTIC anticipates that its sales of ZERUST products and services into the oil and gas industry will continue to remain subject to significant volatility from quarter to quarter as sales are recognized.

Industry Context

The market for biodegradable plastics is expanding worldwide, driven by increasing environmental awareness, regulatory support for sustainable materials, and growing demand for eco-friendly alternatives.

Comparison to Industry Standards

• The document does not contain specific comparisons to industry standards or comparable companies.
• The document does not contain specific project comparisons.

Stakeholder Impact

• Shareholders will see a temporary reduction in the quarterly dividend from $0.07 to $0.01 per share.
• The company's performance is subject to various risks and uncertainties, including economic conditions, competition, and regulatory changes.

Next Steps

• The company expects to spend an aggregate of approximately $600,000 to $800,000 on capital expenditures during the remainder of fiscal 2025, which it expects will relate primarily to final implementation of the ERP software and the purchase of new equipment and facility improvements.

Key Dates

Keywords

ZERUST, Natur-Tec, net sales, joint ventures, corrosion prevention, bioplastics, financial results, NTIC, ERC