10-Q: Northern Technologies Reports Q3 Results, Net Loss Attributed to NTIC

Northern Technologies International Corporation reported a net loss attributable to NTIC of $263,291 for the third quarter ended May 31, 2026, a shift from the prior year's net income, driven by increased operating expenses and interest costs.

Summary

• Northern Technologies International Corporation (NTIC) reported a net loss attributable to NTIC of $263,291 for the third quarter ended May 31, 2026, compared to a net income of $121,775 in the same period last year. For the nine-month period, NTIC reported a net loss of $60,795, a significant decrease from a net income of $1,117,185 in the prior year.
• Consolidated net sales increased by 12.6% to $24.2 million for the third quarter and by 12.3% to $69.5 million for the nine-month period, driven by growth in both ZERUST and Natur-Tec product lines.
• Cost of goods sold as a percentage of net sales increased to 66.4% for the quarter and 64.9% for the nine months, attributed to higher raw material prices and selling price discounts.
• Equity in income from joint ventures saw a substantial increase of 56.4% for the quarter and 41.1% for the nine months, largely due to tax planning adjustments that shifted income from fees for services to equity income for two joint ventures.
• Operating expenses rose by 5.3% for the quarter and 5.2% for the nine months, primarily due to strategic investments in ZERUST oil and gas marketing and sales, as well as increased travel and professional fees.
• The company announced the suspension of its quarterly cash dividend on April 24, 2026, to focus on debt reduction.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the reported net loss, increased cost of goods sold impacting margins, and the suspension of dividends, despite revenue growth and strong performance in specific segments like oil and gas.

Positives

• Consolidated net sales increased by 12.6% to $24.2 million for the third quarter and by 12.3% to $69.5 million for the nine-month period, indicating strong demand for both ZERUST and Natur-Tec products.
• ZERUST industrial net sales increased by 10.3% and 9.4% for the three and nine months, respectively, driven by demand in North America and China.
• ZERUST oil & gas net sales saw significant growth, increasing by 72.3% and 67.3% for the three and nine months, respectively, primarily due to increased demand in the Middle East and Brazil.
• Equity in income from joint ventures increased significantly by 56.4% for the quarter and 41.1% for the nine months, partly due to tax planning adjustments.
• The company secured a three-year offshore oil and gas production asset preservation contract in Brazil with an estimated total value of approximately R$70 million (US$13.1 million).

Negatives

• NTIC reported a net loss attributable to NTIC of $263,291 for the third quarter, a reversal from a net income of $121,775 in the prior year.
• For the nine-month period, NTIC reported a net loss of $60,795, a substantial decline from a net income of $1,117,185 in the prior year.
• Cost of goods sold as a percentage of net sales increased to 66.4% for the quarter and 64.9% for the nine months, impacting gross margins.
• Fees for services provided to joint ventures decreased by 20.6% for the quarter and 17.2% for the nine months, primarily due to tax planning modifications.
• The company was not in compliance with the Fixed Charge Coverage Ratio covenant under its Credit Agreement with JPM as of May 31, 2026, although a waiver was obtained.
• The company announced the suspension of its quarterly cash dividend to focus on debt reduction.

Risks

• Geopolitical instability in the Middle East and disruptions in global petrochemical and supply chain markets could adversely affect business, results of operations, and financial condition.
• Changes to trade regulations, quotas, duties, or tariffs due to evolving geopolitical environments.
• Worldwide economic conditions, including inflation, recessionary indicators, and turmoil in credit, financial, and banking markets.
• Slowdowns in the automotive industry and decreased exports due to tariffs.
• Worldwide disruption in supply chains affecting business, operating results, and financial condition.
• Disruptions to distribution channels, customers, suppliers, and subcontractors.
• The ongoing war between Russia and Ukraine and conflicts in the Middle East impacting energy prices, joint venture sales, and commodity price fluctuations.
• Risks associated with operations in China, including potential trade issues from increasing U.S.-China tensions.
• Variability in sales of ZERUST products to the oil and gas industry and Natur-Tec products, leading to quarterly earnings fluctuations.
• Exposure to fluctuations in foreign currency exchange rates, import duties, taxes, and tariffs in international operations.
• Dependence on the success of joint ventures and the receipt of fees and dividend distributions.
• Fluctuations in the cost and availability of raw materials, including resins and other commodities.
• Challenges in introducing new products and services that respond to changing market conditions and customer demand.
• Increased competition, particularly for ZERUST products and services, affecting pricing, net sales, and margins.
• Potential impact of rapid advancements in artificial intelligence (AI) technologies on the industry and competitive position.
• Loss of or changes in executive management or key employees.
• Pending and future litigation.
• Reliance on intellectual property rights and the absence of infringement of others' intellectual property.

Future Outlook

The company anticipates that its earnings will continue to be adversely affected to some extent by inflation and worldwide supply chain disruptions. Quarterly net income is expected to remain subject to significant volatility due to the financial performance of subsidiaries and joint ventures, sales in the oil and gas industry, and sales of Natur-Tec bioplastics products. Management intends to focus strategically on reducing debt through positive operating cash flows and improving working capital efficiencies.

Management Comments

• Management has implemented, and expects to continue to implement, proactive measures to mitigate inflationary and supply chain pressures resulting from tariffs through a combination of supplier diversification, regional sourcing initiatives, cost reduction programs, and manufacturing optimization.
• Management continues to monitor global trade developments and evaluate opportunities to further reduce its exposure to tariffs by localizing production and developing alternative sourcing options where practicable.
• The amount and timing of revenue anticipated to be generated under the Zerust Brazil offshore oil and gas contract may materially and positively affect NTICs future quarterly sales and other operating results.
• 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.
• NTIC believes that a combination of its existing cash and cash equivalents, forecasted cash flows from future operations, anticipated distributions of earnings from NTICs joint ventures, anticipated fees to NTIC for services provided to its joint ventures, and funds available through existing or anticipated financing arrangements will be adequate to fund its existing operations, investments in new or existing joint ventures or subsidiaries, capital expenditures, debt repayments, any cash dividends, and any stock repurchases for at least the next 12 months.

Industry Context

StockSavvy.ai notes that Northern Technologies International Corporation operates in two key segments: ZERUST for corrosion prevention and Natur-Tec for biodegradable plastics. The ZERUST segment is benefiting from increased demand in the oil and gas sector, a trend that aligns with broader industry needs for infrastructure maintenance and longevity. The Natur-Tec segment is positioned to capitalize on the growing global demand for sustainable packaging solutions, driven by environmental consciousness and regulatory support, a significant trend across the chemical and materials industries.

Comparison to Industry Standards

• The company's ZERUST segment's growth in oil and gas sales (72.3% and 67.3% for Q3 and nine months, respectively) outpaces general industrial growth (10.3% and 9.4%), suggesting strong performance in a specialized, high-demand sector.
• The increase in cost of goods sold as a percentage of net sales (66.4% for Q3) is a concern, as it indicates pressure on margins, a common challenge in manufacturing sectors facing raw material price volatility.
• The Natur-Tec segment's sales growth of 5.0% for both periods, while positive, is slower than the ZERUST segment, potentially reflecting the competitive landscape or specific market dynamics within biodegradable plastics.
• The company's decision to suspend dividends to focus on debt reduction is a strategic move often seen in companies aiming to strengthen their balance sheets, particularly when facing increased interest expenses or covenant compliance challenges, as indicated by the Fixed Charge Coverage Ratio.

Legal Proceedings

• From time to time, the Company is subject to various claims and legal actions in the ordinary course of its business. In the opinion of management, as of May 31, 2026, the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect the Company's consolidated results of operations, financial position or cash flows.

Related Party Transactions

• Fees for services provided to joint ventures are recognized as revenue by NTIC.
• NTIC's equity in income from joint ventures is recognized as income.
• Dividends received from joint ventures are reported.

Stakeholder Impact

• Shareholders: The suspension of the quarterly cash dividend and the reported net loss may negatively impact shareholder returns and confidence. However, the focus on debt reduction could improve long-term financial stability.
• Creditors: The company's non-compliance with the Fixed Charge Coverage Ratio covenant, though waived, indicates potential strain on financial covenants. The focus on debt reduction is positive for creditors.
• Employees: Increased operating expenses include personnel expenses, suggesting continued investment in the workforce, but the overall financial performance could impact future compensation or employment stability.
• Joint Ventures: NTIC's equity in income from joint ventures increased, and the company continues to invest in and rely on these partnerships. Changes in fee structures for services provided to joint ventures have been implemented for tax planning purposes.

Next Steps

• Focus on reducing outstanding debt through positive operating cash flows and improving working capital efficiencies.
• Continue to invest in Zerust India, NTIC China, NTI Europe, joint ventures, research and development, marketing efforts for oil and gas applications, and the Natur-Tec bioplastics business.
• Potentially acquire remaining ownership interests of joint ventures or form new subsidiaries.
• Explore financing opportunities through additional borrowings under the revolving line of credit or issuing debt or equity securities if new product and market opportunities arise.
• Expect to spend approximately $600,000 to $900,000 on capital expenditures during the remainder of fiscal 2026, primarily for construction in India and Brazil, and equipment/facility improvements in the U.S.

Key Dates

Recommendation

While revenue growth and strong performance in specific segments like oil and gas are positive, the reported net loss, increased cost of goods sold, and the suspension of dividends to focus on debt reduction present significant concerns. The company's ability to manage its debt and improve profitability will be key. The waiver on the debt covenant provides some short-term relief, but the overall financial picture warrants a cautious 'hold' rating pending further operational improvements and clearer debt reduction progress.

Keywords

Northern Technologies International Corporation, NTIC, Form 10-Q, Quarterly Report, ZERUST, Natur-Tec, Corrosion Prevention, Biodegradable Plastics, Financial Results, Net Sales, Joint Ventures, Oil and Gas Industry, Debt Reduction, Dividend Suspension