Northern Technologies International (NTIC)

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Northern Technologies International (NTIC) - 2024 Q2 - Earnings Call Transcript
2024-04-11 15:54
Financial Data and Key Metrics Changes - Year-over-year cash from operating activities improved by nearly 156% to $5.6 million primarily due to higher net income and positive changes in working capital [2] - Net income attributable to the company was $1.7 million or $0.17 per diluted share for the fiscal 2024 second quarter compared to $411,000 or $0.04 per diluted share for the fiscal 2023 second quarter [89] - Gross profit as a percentage of net sales was 40% during the three months ended February 29, 2024, compared to 34.5% during the prior fiscal year period, reflecting a 551 basis point improvement [6] Business Line Data and Key Metrics Changes - Natur-Tec sales increased 47.5% year-over-year to a quarterly record of $5.6 million, driven by new customer wins in North America and India [4] - ZERUST Oil & Gas sales were $2.2 million for the fiscal 2024 second quarter, a 20.1% year-over-year increase, attributed to the shift of certain oil and gas projects and positive demand [29] - Total consolidated net sales increased 14.1% to a second quarter record of $20.8 million compared to the second quarter ended February 28, 2023 [82] Market Data and Key Metrics Changes - Sales from global joint ventures declined 7.9% in the fiscal 2024 second quarter, while joint venture operating income increased 4.2% compared to the prior fiscal year period [31] - The Chinese market showed improvement with a 20.3% increase in sales from the NTIC China subsidiary, marking the first year-over-year increase in over two years [3][14] Company Strategy and Development Direction - The company intends to allocate capital to support growth initiatives and quarterly dividend payments while using excess cash flow to pay down existing credit lines [2] - The company is focused on enhancing profitability at joint ventures and expects Natur-Tec sales growth to continue throughout the second half of fiscal 2024 [87][90] - The company is optimistic about the long-term opportunities in the Chinese market despite near-term uncertainties [86] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding demand in China and expects continued improvement in sales and profitability [3][12] - The company anticipates a strong second half of the year for both Natur-Tec and oil and gas segments, with expectations for higher profitability [12][33] - Management noted that the growth in profitability is driven by successful initiatives to improve gross margins and operational efficiencies [112] Other Important Information - The Board of Directors declared a quarterly cash dividend of $0.07 per share payable on February 14, 2024 [7] - Total operating expenses increased 9.4% to $8.6 million compared to the same period last fiscal year, primarily due to increased personnel costs [116] Q&A Session Summary Question: What is the pipeline for ZERUST and Natur-Tec? - Management indicated strong repeat business with existing customers and ongoing investments in technical services and sales to drive growth in oil and gas [10][35] Question: Is the growth in Natur-Tec sustainable? - Management expects Natur-Tec to have a strong second half of the year, with ongoing projects contributing to recurring revenues [12][36] Question: What are the expectations for gross margins going forward? - Management believes that a gross margin of 40% is sustainable for the next few quarters, although external factors could impact costs [38] Question: How is the automotive sector in China performing? - Management noted improvements in the Chinese market, particularly in the automotive sector, and highlighted ongoing cost-cutting efforts to enhance profitability [14][99] Question: What is the outlook for joint ventures? - Management expects joint venture contributions to rebound in the coming quarters, driven by ongoing efforts to enhance profitability [69][109]
Northern Technologies International (NTIC) - 2024 Q2 - Quarterly Report
2024-04-11 12:01
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________ FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 29, 2024 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to __________________ Commission File Number: 001-11038 ____________________ NORTHERN TECHNOLOGIES INTERNAT ...
Northern Technologies International (NTIC) - 2024 Q2 - Quarterly Results
2024-04-11 12:00
[Financial and Operating Highlights for Second Quarter Fiscal 2024](index=1&type=section&id=Financial%20and%20Operating%20Highlights%20for%20Second%20Quarter%20Fiscal%202024) NTIC achieved record Q2 FY2024 performance with strong sales growth, significant profitability improvement, and enhanced liquidity [Management Commentary](index=1&type=section&id=Management%20Commentary) Management reported record Q2 sales and a 40% gross margin, anticipating continued strong demand and positive cash flow - Management reported record Q2 sales for ZERUST oil and gas and record quarterly sales for Natur-Tec, reflecting strong market demand[2](index=2&type=chunk) - Gross margin improved significantly, reaching **40% in Q2**, a **5.5 percentage point increase year-over-year**, due to successful strategic execution[2](index=2&type=chunk) - The company expects strong demand to continue through the second half of fiscal 2024, with a focus on improving profitability, generating positive cash flow, and paying down its line of credit[3](index=3&type=chunk) [Key Financial & Operating Highlights](index=1&type=section&id=Key%20Financial%20%26%20Operating%20Highlights) NTIC achieved record Q2 FY2024 consolidated net sales of $20.8 million and a 313% increase in net income Q2 FY2024 Key Performance Indicators (Year-over-Year) | Metric | Q2 FY2024 | % Change (YoY) | | :--- | :--- | :--- | | Consolidated Net Sales | $20,843,000 | 14.1% | | ZERUST Industrial Net Sales | $13,051,000 | 3.1% | | ZERUST Oil and Gas Net Sales | $2,167,000 | 20.1% | | Natur-Tec Product Net Sales | $5,624,000 | 47.5% | | Gross Margin | 40.0% | +551 bps | | Net Income (attributable to NTIC) | $1,701,000 | 313% | | Net Income per Diluted Share | $0.17 | 325% | - The company generated **$5.643 million in cash from operating activities** for the first six months of fiscal 2024[7](index=7&type=chunk) - The balance sheet strengthened, shifting from net debt of **$951,000** at August 31, 2023, to net cash of **$860,000** as of February 29, 2024[7](index=7&type=chunk) [Financial Performance Analysis](index=1&type=section&id=Financial%20Performance%20Analysis) This section analyzes NTIC's net sales, profitability, and joint venture performance for Q2 and H1 FY2024 [Net Sales Performance](index=1&type=section&id=Net%20Sales%20Performance) Consolidated net sales grew 14.1% in Q2 FY2024, driven by strong Natur-Tec and ZERUST oil and gas segment growth Net Sales by Product Category (Three Months Ended) | Product Category | Q2 FY2024 | Q2 FY2023 | % Change | | :--- | :--- | :--- | :--- | | ZERUST industrial | $13,050,767 | $12,653,512 | 3.1% | | ZERUST oil and gas | $2,167,328 | $1,805,235 | 20.1% | | **Total ZERUST** | **$15,218,095** | **$14,458,747** | **5.3%** | | **Total Natur-Tec** | **$5,624,443** | **$3,812,078** | **47.5%** | | **Total Net Sales** | **$20,842,538** | **$18,270,825** | **14.1%** | Net Sales by Product Category (Six Months Ended) | Product Category | H1 FY2024 | H1 FY2023 | % Change | | :--- | :--- | :--- | :--- | | ZERUST industrial | $26,954,198 | $26,401,616 | 2.1% | | ZERUST oil and gas | $3,669,642 | $3,427,132 | 7.1% | | **Total ZERUST** | **$30,623,840** | **$29,828,748** | **2.7%** | | **Total Natur-Tec** | **$10,400,373** | **$8,394,843** | **23.9%** | | **Total Net Sales** | **$41,024,213** | **$38,223,591** | **7.3%** | [Profitability Analysis](index=2&type=section&id=Profitability%20Analysis) Q2 FY2024 net income surged 313% to $1.7 million, supported by gross margin expansion and controlled operating expenses Income Statement Highlights (Q2 & H1 FY2024 vs FY2023) | Metric | Q2 FY2024 | Q2 FY2023 | H1 FY2024 | H1 FY2023 | | :--- | :--- | :--- | :--- | :--- | | Gross Profit | $8,339,164 | $6,303,068 | $15,673,438 | $12,656,192 | | Operating Income | $2,206,271 | $813,556 | $3,582,704 | $1,643,132 | | Net Income (to NTIC) | $1,701,000 | $411,000 | $2,597,000 | $914,000 | | Diluted EPS (to NTIC) | $0.17 | $0.04 | $0.27 | $0.09 | - Operating expenses as a percentage of net sales decreased to **41.3% for Q2 FY2024**, compared to 43.1% for the same period last fiscal year, despite an increase in absolute dollar terms due to higher personnel expenses[9](index=9&type=chunk) [Joint Venture Performance](index=2&type=section&id=Joint%20Venture%20Performance) Joint venture operating income increased 4.2% in Q2 FY2024, despite a 7.9% decrease in net sales Joint Venture Performance (Q2 FY2024 vs Q2 FY2023) | Metric | Q2 FY2024 | Q2 FY2023 | % Change | | :--- | :--- | :--- | :--- | | JV Operating Income | $2,481,000 | $2,381,000 | 4.2% | | JV Net Sales (Not Consolidated) | $23,480,000 | $25,483,000 | -7.9% | - The increase in joint venture operating income was primarily due to efforts to enhance profitability, which offset the impact of lower sales[8](index=8&type=chunk) [Financial Position](index=2&type=section&id=Financial%20Position) NTIC's balance sheet shows improved liquidity with a shift from net debt to net cash and stable working capital [Balance Sheet and Liquidity](index=2&type=section&id=Balance%20Sheet%20and%20Liquidity) NTIC strengthened its balance sheet with increased working capital and a shift to a net cash position by Q2 FY2024 Key Balance Sheet Items | Metric | Feb 29, 2024 | Aug 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $4,835,000 | $5,406,000 | | Working Capital | $23,975,000 | $22,950,000 | | Total Debt (Line of Credit & Term Loan) | $3,975,000 | $6,357,000 | | Investments in joint ventures | $23,461,000 | $23,706,000 | - Of the **$23.5 million in joint venture investments**, **$13.1 million (55.8%)** is held in cash[12](index=12&type=chunk) [Consolidated Financial Statements](index=3&type=section&id=Consolidated%20Financial%20Statements) This section presents NTIC's unaudited consolidated balance sheets and statements of operations for Q2 and H1 FY2024 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased slightly to $87.3 million, while total liabilities reduced and total equity increased by Q2 FY2024 Consolidated Balance Sheet Summary (in thousands) | | Feb 29, 2024 | Aug 31, 2023 | | :--- | :--- | :--- | | **ASSETS** | | | | Total current assets | $37,333 | $39,672 | | Total assets | $87,307 | $89,344 | | **LIABILITIES AND EQUITY** | | | | Total current liabilities | $13,358 | $16,721 | | Total liabilities | $15,359 | $18,645 | | Total equity | $71,948 | $70,699 | | Total liabilities and equity | $87,307 | $89,344 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Q2 FY2024 net sales reached $20.8 million with net income of $1.9 million, significantly up year-over-year Consolidated Statement of Operations (Three Months Ended) | | Feb 29, 2024 | Feb 28, 2023 | | :--- | :--- | :--- | | Net sales | $20,842,538 | $18,270,825 | | Gross profit | $8,339,164 | $6,303,068 | | Operating income | $2,206,271 | $813,556 | | Net income | $1,868,528 | $520,068 | | Net income attributable to NTIC | $1,701,169 | $411,497 | Consolidated Statement of Operations (Six Months Ended) | | Feb 29, 2024 | Feb 28, 2023 | | :--- | :--- | :--- | | Net sales | $41,024,213 | $38,223,591 | | Gross profit | $15,673,438 | $12,656,192 | | Operating income | $3,582,704 | $1,643,132 | | Net income | $2,953,469 | $1,153,748 | | Net income attributable to NTIC | $2,596,690 | $913,739 | [Non-GAAP Financial Measures](index=6&type=section&id=Non-GAAP%20Financial%20Measures) This section provides reconciliation of GAAP to non-GAAP financial measures, primarily adjusting for amortization expense [Reconciliation of GAAP to Non-GAAP Measures](index=6&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) Non-GAAP adjusted net income for Q2 FY2024 was $1.8 million, providing a clearer view of operating performance - The company uses non-GAAP measures to supplement GAAP reporting, believing it helps investors compare operating performance by excluding non-recurring or unusual charges[23](index=23&type=chunk) GAAP to Non-GAAP Reconciliation (Q2 FY2024) | Metric | GAAP (As Reported) | Non-GAAP (Adjusted) | | :--- | :--- | :--- | | Net Income (to NTIC) | $1,701,169 | $1,806,952 | | Diluted EPS (to NTIC) | $0.17 | $0.18 | [Corporate Information and Disclosures](index=3&type=section&id=Corporate%20Information%20and%20Disclosures) This section provides an overview of NTIC's business and important forward-looking statement disclosures [About Northern Technologies International Corporation](index=3&type=section&id=About%20Northern%20Technologies%20International%20Corporation) NTIC develops and markets environmentally beneficial corrosion prevention and bio-based polymer products globally - NTIC's main business is corrosion prevention, marketed under the **ZERUST® brand**[16](index=16&type=chunk) - The company also sells a portfolio of bio-based and biodegradable polymer products under the **Natur-Tec® brand**[16](index=16&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) Future performance statements are subject to various risks including economic conditions, supply chain, and joint venture dependencies - Statements about future performance are subject to risks including the health of the U.S. and worldwide economies, supply chain disruptions, and dependence on joint ventures[17](index=17&type=chunk) - The company directs investors to its Form 10-K and 10-Q filings for a more comprehensive understanding of business risks[17](index=17&type=chunk)
Northern Technologies International (NTIC) - 2023 Q4 - Earnings Call Transcript
2024-01-11 15:31
Financial Data and Key Metrics Changes - The company reported a consolidated net sales increase of 1.1% year-over-year for Q1 fiscal 2024, reaching a record of $20.2 million [18][32] - Net income attributable to NTIC was $896,000 or $0.09 per diluted share, compared to $502,000 or $0.05 per share for the same period last year, reflecting a significant improvement [38] - Operating cash flows improved by 53.6% year-over-year, generating $3.1 million compared to $2 million in the prior year [21] - Gross profit as a percentage of net sales increased to 36.3%, up from 31.8% in the prior fiscal year, indicating successful measures to combat inflationary pressures [38] Business Line Data and Key Metrics Changes - Natur-Tec net sales increased by 4.2% year-over-year to a record $4.8 million, driven by strong demand in North America and India [34] - ZERUST industrial net sales saw a 1.1% increase, while ZERUST oil and gas net sales declined by 7.4% to $1.5 million due to project timing [15][32] - Total operating expenses rose by 5.2% to $8.3 million, primarily due to increased personnel costs, with operating expenses as a percentage of net sales at 41.2% [19] Market Data and Key Metrics Changes - Sales from the company's joint ventures decreased by 4.7% year-over-year to $23.6 million, with EXCOR Germany experiencing a 17% decline due to lost customers and reduced demand linked to external factors [14][37] - NTIC China subsidiary sales decreased by 1.8% year-over-year to $3.7 million, although there was a sequential increase of 4.1% [7][32] Company Strategy and Development Direction - The company is making strategic investments to enhance infrastructure and support long-term growth, particularly in oil and gas and Natur-Tec businesses [12] - There is a focus on improving operational efficiencies and capital allocation to support growth initiatives and dividends [5][12] - The company aims to leverage partnerships to grow Natur-Tec by developing specialty applications for larger companies [28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about fiscal 2024, expecting continued profitability and strong operating cash flow [5][6] - The company remains committed to the Chinese market despite current economic uncertainties, believing it will become a significant market in the future [33] - Management acknowledged the challenges posed by the ongoing Ukraine-Russia conflict, particularly in Europe, but noted stable demand trends in North America [30][41] Other Important Information - The board declared a quarterly cash dividend of $0.07 per common share, payable on November 15, 2023 [22] - As of November 30, 2023, the company had outstanding debt of $5.8 million, down from $3.6 million in August 2023 [21][39] Q&A Session Summary Question: Potential for increased sales in the oil tank business - Management confirmed the potential for sales to reach $2.5 million or $3 million in a quarter, highlighting higher gross margins in this segment [26] Question: Opportunities for partnerships in the Natur-Tec business - Management indicated that while Natur-Tec is not yet at a level for standalone valuation, there are significant opportunities for growth through partnerships with larger companies [27][45] Question: Current challenges in the German market - Management noted that the German market remains weak due to lost customers and ongoing geopolitical issues, impacting sales [29][51]
Northern Technologies International (NTIC) - 2024 Q1 - Quarterly Report
2024-01-11 13:00
PART I—FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Presents NTIC's unaudited consolidated financial statements for Q1 FY2024, including core financial statements and detailed explanatory notes [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Presents NTIC's consolidated financial position, detailing assets, liabilities, and equity at period-end | ASSETS (USD) | Nov 30, 2023 | Aug 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $6,094,032 | $5,406,173 | | Total current assets | $38,269,414 | $39,671,556 | | Property and equipment, net | $14,256,990 | $14,065,354 | | Investments in joint ventures | $24,599,520 | $23,705,714 | | Total assets | $88,802,064 | $89,344,303 | | **LIABILITIES AND EQUITY (USD)** | | | | Line of credit | $3,000,000 | $3,600,000 | | Term loan | $2,810,686 | $2,757,176 | | Total current liabilities | $15,854,269 | $16,721,372 | | Total equity | $71,016,154 | $70,698,797 | [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) Presents NTIC's consolidated financial performance, detailing net sales, gross profit, operating income, and net income for the period | Metric (USD) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | | Net sales | $20,181,675 | $19,952,766 | | Gross profit | $7,334,274 | $6,353,124 | | Equity in income from joint ventures | $1,102,241 | $1,189,404 | | Fees for services provided to joint ventures | $1,248,958 | $1,181,805 | | Operating income | $1,376,433 | $829,576 | | Income before income tax expense | $1,311,737 | $744,413 | | Net income attributable to NTIC | $895,521 | $502,242 | | Basic EPS | $0.09 | $0.05 | | Diluted EPS | $0.09 | $0.05 | [Consolidated Statements of Comprehensive Income](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Presents NTIC's comprehensive income, including net income and foreign currency translation adjustments, for the reporting period | Metric (USD) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | | Net income | $1,084,941 | $633,680 | | Other comprehensive income (loss) – foreign currency translation adjustment | $301,319 | $(53,917) | | Comprehensive income attributable to NTIC | $1,202,463 | $717,988 | [Consolidated Statements of Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Equity) Presents changes in NTIC's consolidated equity, detailing common stock, retained earnings, and comprehensive loss components | Equity Item (USD) | Balance at Aug 31, 2023 | Balance at Nov 30, 2023 | | :----------------------------------- | :---------------------- | :---------------------- | | Common Stock Amount | $188,482 | $188,552 | | Additional Paid-in Capital | $21,986,767 | $22,377,726 | | Retained Earnings | $51,004,427 | $51,240,016 | | Accumulated Other Comprehensive Loss | $(6,823,403) | $(6,516,461) | | Non-controlling Interests | $4,342,524 | $3,726,321 | | Total Equity | $70,698,797 | $71,016,154 | - Key changes in equity for the three months ended November 30, 2023: * Stock issued for employee stock purchase plan: **$40,096** * Stock option expense: **$350,933** * Dividends paid to shareholders: **$(659,932)** * Net income: **$895,521** * Comprehensive income: **$301,319**[20](index=20&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Presents NTIC's consolidated cash flows, categorizing activities into operating, investing, and financing for the period | Cash Flow Activity (USD) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $3,076,892 | $2,002,543 | | Net cash used in investing activities | $(423,871) | $(453,539) | | Net cash used in financing activities | $(2,019,836) | $(730,386) | | Net increase in cash and cash equivalents | $687,858 | $732,431 | | Cash and cash equivalents at end of period | $6,094,032 | $6,066,321 | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Offers detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies and key financial components [1. Interim Financial Information](index=11&type=section&id=1.%20Interim%20Financial%20Information) Explains the basis of preparation for the unaudited interim financial statements and their indicative nature - The unaudited consolidated financial statements are prepared in conformity with U.S. GAAP and include all necessary normal recurring adjustments. Operating results for the three months ended November 30, 2023, are not necessarily indicative of the full fiscal year[22](index=22&type=chunk)[24](index=24&type=chunk) [2. Accounting Pronouncements](index=11&type=section&id=2.%20Accounting%20Pronouncements) Discusses the adoption of new accounting standards and their impact on the Company's financial reporting - The Company adopted ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, on September 1, 2023. This adoption did not have a material impact on the Company's consolidated financial position or operating results[25](index=25&type=chunk) [3. Inventories](index=11&type=section&id=3.%20Inventories) Provides a breakdown of NTIC's inventory components, including production materials and finished goods | Inventory Type (USD) | Nov 30, 2023 | Aug 31, 2023 | | :------------------- | :----------- | :----------- | | Production materials | $4,580,739 | $4,960,355 | | Finished goods | $8,011,776 | $8,136,134 | | Total Inventories | $12,592,515 | $13,096,489 | [4. Property and Equipment, Net](index=12&type=section&id=4.%20Property%20and%20Equipment%2C%20Net) Details NTIC's property and equipment, net of accumulated depreciation, and related depreciation expense | Property & Equipment (USD) | Nov 30, 2023 | Aug 31, 2023 | | :------------------------- | :----------- | :----------- | | Land | $496,965 | $496,965 | | Buildings and improvements | $17,649,550 | $17,250,392 | | Machinery and equipment | $6,050,458 | $5,984,364 | | Less accumulated depreciation | $(9,939,983) | $(9,666,367) | | Total Property and equipment, net | $14,256,990 | $14,065,354 | - Depreciation expense increased to **$307,010** for the three months ended November 30, 2023, from **$262,876** in the prior year period[27](index=27&type=chunk) [5. Intangible Assets, Net](index=12&type=section&id=5.%20Intangible%20Assets%2C%20Net) Outlines NTIC's intangible assets, including patents, trademarks, and customer relationships, and associated amortization expense | Intangible Assets (USD) | Nov 30, 2023 Net | Aug 31, 2023 Net | | :---------------------- | :--------------- | :--------------- | | Patents and trademarks | $650,022 | $658,752 | | Customer relationships | $5,394,950 | $5,500,733 | | Total intangible assets, net | $6,044,972 | $6,159,485 | - Amortization expense for intangible assets was **$147,655** for the three months ended November 30, 2023, consistent with **$147,811** in the prior year period. Future amortization expense is estimated at **$528,439** for Fiscal 2024[28](index=28&type=chunk)[29](index=29&type=chunk) [6. Investments in Joint Ventures](index=13&type=section&id=6.%20Investments%20in%20Joint%20Ventures) Presents financial information related to NTIC's investments in joint ventures, including assets, equity, and operational results | Joint Venture Financials (USD) | Nov 30, 2023 Total | Aug 31, 2023 Total | | :----------------------------- | :----------------- | :----------------- | | Total assets | $63,316,496 | $59,729,348 | | Joint ventures' equity | $49,692,091 | $47,941,339 | | NTIC's share of joint ventures' equity | $24,599,516 | $23,705,714 | | NTIC's share of joint ventures' undistributed earnings | $23,654,848 | $20,493,861 | | Joint Venture Operations (USD) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :----------------------------- | :------------------------------ | :------------------------------ | | Net sales | $23,560,661 | $24,730,289 | | Net income | $2,204,482 | $2,646,908 | | NTIC's share of equity in income from joint ventures | $1,102,241 | $1,189,400 | | NTIC's dividends received from joint ventures | $371,104 | $3,042,688 | [7. Corporate Debt](index=13&type=section&id=7.%20Corporate%20Debt) Details NTIC's corporate debt, including its revolving line of credit and term loans, along with associated covenants - NTIC has a senior secured revolving line of credit of up to **$10.0 million** with JPMorgan Chase Bank, N.A., with **$3.0 million** outstanding as of November 30, 2023. The maturity date was extended to January 6, 2025[32](index=32&type=chunk)[33](index=33&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) - NTIC China has two term loans totaling **$2,810,686** as of November 30, 2023, with China Construction Bank Corporation, each for **RMB 10,000,000** at an annual interest rate of **3.25%**[38](index=38&type=chunk)[97](index=97&type=chunk) - The Credit Agreement includes covenants such as maintaining a Fixed Charge Coverage Ratio of at least **1.25 to 1.00**, with NTIC in compliance as of November 30, 2023[36](index=36&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) [8. Stockholders' Equity](index=15&type=section&id=8.%20Stockholders%27%20Equity) Discusses changes in stockholders' equity, including dividends declared and shares issued under the ESPP - A cash dividend of **$0.07 per share** of common stock was declared on October 18, 2023, payable on November 15, 2023. No shares were repurchased during the three months ended November 30, 2023[40](index=40&type=chunk)[41](index=41&type=chunk) - **3,496 shares** of common stock were issued under the Employee Stock Purchase Plan (ESPP) on September 1, 2023, with **58,538 shares** remaining available for sale[41](index=41&type=chunk) [9. Net Income Per Common Share](index=15&type=section&id=9.%20Net%20Income%20Per%20Common%20Share) Provides calculations for basic and diluted net income per common share, including weighted average shares outstanding | EPS Metric | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | | Net income attributable to NTIC | $895,521 | $502,242 | | Basic – weighted shares outstanding | 9,427,588 | 9,317,680 | | Diluted – weighted shares outstanding | 9,706,581 | 9,718,931 | | Basic net income per share | $0.09 | $0.05 | | Diluted net income per share | $0.09 | $0.05 | - Options to purchase **580,869 shares** of common stock were excluded from diluted EPS computation for the three months ended November 30, 2023, as they were anti-dilutive[42](index=42&type=chunk) [10. Stock-Based Compensation](index=16&type=section&id=10.%20Stock-Based%20Compensation) Details stock option activity, weighted average exercise price, and recognized stock-based compensation expense | Stock Option Activity | As of Aug 31, 2023 | Granted (3 months) | As of Nov 30, 2023 | | :-------------------- | :----------------- | :----------------- | :----------------- | | Options Outstanding | 1,557,131 | 269,845 | 1,826,976 | | Weighted Average Exercise Price | $11.08 | $13.25 | $11.40 | - The Company recognized **$350,933** in stock-based compensation expense for the three months ended November 30, 2023, with **$2,037,871** of unrecognized expense remaining, expected to be recognized over **2.75 years**[44](index=44&type=chunk) [11. Segment and Geographic Information](index=16&type=section&id=11.%20Segment%20and%20Geographic%20Information) Provides financial data segmented by NTIC's ZERUST® and Natur-Tec® businesses and geographic regions - NTIC operates in two reportable segments: ZERUST® (corrosion prevention) and Natur-Tec® (bio-based and compostable polymer products)[45](index=45&type=chunk) | Segment Net Sales (USD) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :---------------------- | :------------------------------ | :------------------------------ | | ZERUST® net sales | $15,405,745 | $15,370,001 | | Natur-Tec® net sales | $4,775,930 | $4,582,765 | | Total net sales | $20,181,675 | $19,952,766 | | Geographic Net Sales (USD) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :------------------------- | :------------------------------ | :------------------------------ | | Inside the U.S.A. to unaffiliated customers | $12,097,843 | $7,478,161 | | Outside the U.S.A. to joint ventures | $851,452 | $633,465 | | Outside the U.S.A. to unaffiliated customers | $7,232,380 | $11,841,140 | | Total net sales | $20,181,675 | $19,952,766 | - Fees for services provided to joint ventures increased by **5.7% to $1,248,958**, with Germany, Poland, and Japan being the largest contributors[49](index=49&type=chunk) [12. Commitments and Contingencies](index=18&type=section&id=12.%20Commitments%20and%20Contingencies) Discusses trade receivables from joint ventures and management's assessment of legal matters' financial impact - Three joint ventures (Korea, Thailand, Japan) accounted for **68.2%** of trade joint venture receivables as of November 30, 2023. Management believes legal matters will not materially affect the Company's financial position[52](index=52&type=chunk)[53](index=53&type=chunk) [13. Supplemental Cash Flow Information](index=19&type=section&id=13.%20Supplemental%20Cash%20Flow%20Information) Provides additional details on cash flow activities, specifically cash paid for interest during the period - Cash paid for interest increased to **$111,138** for the three months ended November 30, 2023, from **$91,331** in the prior year period[54](index=54&type=chunk) [14. Income Taxes](index=19&type=section&id=14.%20Income%20Taxes) Details income tax expense, its drivers, and the valuation allowance recorded against U.S. deferred tax assets - Income tax expense increased to **$226,796** for the three months ended November 30, 2023, from **$110,733** in the prior year, primarily due to foreign operations. A full valuation allowance is recorded against U.S. deferred tax assets[55](index=55&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes NTIC's financial condition and operational results for Q1 FY2024, detailing business overview, performance, liquidity, capital resources, and market risks [Business Overview](index=20&type=section&id=Business%20Overview) Describes NTIC's core businesses, ZERUST® and Natur-Tec®, and strategic initiatives for market expansion - NTIC develops and markets proprietary, environmentally beneficial products and services in over 65 countries, primarily under the ZERUST® brand for corrosion prevention and Natur-Tec® for bio-based and compostable polymer products[57](index=57&type=chunk) - Strategic initiatives include expanding ZERUST® into the oil and gas industry, which involves long sales cycles, and strengthening the North American distribution network for Natur-Tec® bioplastic products[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) [Financial Overview](index=21&type=section&id=Financial%20Overview) Summarizes NTIC's operational structure into two reportable business segments: ZERUST® and Natur-Tec® - NTIC manages its operations in two reportable business segments: ZERUST® products and services, and Natur-Tec® products[64](index=64&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Analyzes NTIC's financial performance, detailing net sales, cost of goods sold, equity income, and operating expenses for the period | Metric (USD) | Nov 30, 2023 | Nov 30, 2022 | $ Change | % Change | | :----------------------------------- | :----------- | :----------- | :------- | :------- | | Net sales | $20,181,675 | $19,952,766 | $228,909 | 1.1% | | Cost of goods sold | $12,847,401 | $13,599,642 | $(752,241) | (5.5%) | | Equity in income from joint ventures | $1,102,241 | $1,189,404 | $(87,163) | (7.3%) | | Fees for services provided to joint ventures | $1,248,958 | $1,181,805 | $67,153 | 5.7% | | Selling expenses | $3,686,058 | $3,507,434 | $178,624 | 5.1% | | General and administrative expenses | $3,517,061 | $3,130,599 | $386,462 | 12.3% | | Research and development expenses | $1,105,921 | $1,256,724 | $(150,803) | (12.0%) | | Net income attributable to NTIC | $895,521 | $502,242 | $393,279 | 78.3% | - Consolidated net sales increased **1.1%**, primarily due to a **4.2%** increase in Natur-Tec® product sales, while ZERUST® sales saw a modest **0.2%** increase[67](index=67&type=chunk)[69](index=69&type=chunk) - Gross profit margin improved as cost of goods sold as a percentage of net sales decreased to **63.7%** from **68.2%**, mainly due to lower raw material prices[67](index=67&type=chunk)[73](index=73&type=chunk) - Equity in income from joint ventures decreased **7.3%**, primarily due to a decline in net income from the German joint venture (EXCOR), partially offset by increases in other joint ventures[67](index=67&type=chunk)[74](index=74&type=chunk) - Total operating expenses increased **5.2%**, driven by higher personnel, professional services, and travel expenses, while R&D expenses decreased **12.0%**[67](index=67&type=chunk)[75](index=75&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses NTIC's liquidity and capital resources, including working capital, cash flows, and future capital expenditure plans | Metric (USD) | Nov 30, 2023 | Aug 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Working capital | $22,415,145 | $22,950,184 | | Cash and cash equivalents | $6,094,032 | $5,406,173 | - NTIC believes existing cash, forecasted cash flows, and financing arrangements will be adequate for at least the next 12 months, with plans to invest in subsidiaries, joint ventures, R&D, and the oil & gas and Natur-Tec® businesses[87](index=87&type=chunk) - Net cash provided by operating activities increased to **$3,076,892** for the three months ended November 30, 2023, primarily due to decreases in dividends receivable from joint ventures and trade receivables[98](index=98&type=chunk) - Trade receivables (excluding joint ventures) decreased by **$1,405,769**, with average days outstanding improving from **71 to 67 days**. Trade receivables from joint ventures increased by **$590,713**, with average days outstanding increasing from **34 to 83 days**[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk) - Capital expenditures for the period were **$390,729**, mainly for a new warehouse facility and equipment. Expected capital expenditures for fiscal 2024 are **$1.6 million to $2.1 million** for ERP software and facility improvements[104](index=104&type=chunk)[108](index=108&type=chunk) [Inflation and Seasonality](index=28&type=section&id=Inflation%20and%20Seasonality) Discusses the impact of inflationary pressures on gross margins and the seasonal nature of NTIC's business operations - Inflationary pressures adversely affected gross margins in Q1 fiscal 2024. The business experiences seasonality, with Q2 net sales potentially impacted by Chinese New Year, North American holidays, and lower winter temperatures[109](index=109&type=chunk) [Market Risk](index=28&type=section&id=Market%20Risk) Identifies NTIC's exposure to foreign currency, commodity price, and interest rate risks and their potential financial impact - NTIC is exposed to foreign currency exchange rate risk (Euro, Yen, Rupee, Renminbi, Won, Pound vs. USD), commodity price risk (plastic and bioplastic resins), and interest rate risk on its floating-rate credit facility and fixed-rate term loans[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) [Critical Accounting Policies and Estimates](index=29&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Confirms no material changes to NTIC's critical accounting policies and estimates from the prior fiscal year - There have been no material changes to NTIC's critical accounting policies and estimates from those disclosed in the annual report on Form 10-K for the fiscal year ended August 31, 2023[114](index=114&type=chunk) [Recent Accounting Pronouncements](index=29&type=section&id=Recent%20Accounting%20Pronouncements) Refers to Note 2 for details on recent accounting pronouncements and their non-material impact on NTIC - Refer to Note 2 of the consolidated financial statements for a discussion of recent accounting pronouncements, specifically the adoption of ASU No. 2016-13 which had no material impact[115](index=115&type=chunk)[25](index=25&type=chunk) [Forward-Looking Statements](index=29&type=section&id=Forward-Looking%20Statements) Highlights uncertainties and risk factors that could cause actual results to differ materially from forward-looking statements - The report contains forward-looking statements subject to uncertainties and factors that could cause actual results to differ materially, including worldwide supply chain disruptions, economic conditions, geopolitical conflicts (Russia-Ukraine, Israel-Hamas), and risks associated with international operations and joint ventures[116](index=116&type=chunk)[118](index=118&type=chunk)[120](index=120&type=chunk) - Other risks include variability in sales of ZERUST® oil & gas and Natur-Tec® products, fluctuations in raw material costs, increased competition, and the ability to introduce new products and manage intellectual property[120](index=120&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Details NTIC's exposure to market risks, including foreign currency, commodity prices, and interest rates, noting no hedging for currency risk - NTIC is exposed to market risk from foreign currency exchange rates (Euro, Yen, Rupee, Renminbi, Won, Pound against USD), commodity prices (plastic and bioplastic resins), and interest rates on its floating-rate credit facility and fixed-rate term loans[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) - Fluctuations in foreign currency exchange rates could impact reported net income, as fees for services and dividend distributions from foreign entities are paid in local currencies. NTIC does not hedge against this risk[124](index=124&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded NTIC's disclosure controls were ineffective due to a material weakness in internal control over financial reporting concerning employee retention credits - NTIC's disclosure controls and procedures were not effective as of November 30, 2023, due to a material weakness in internal control over financial reporting[128](index=128&type=chunk) - The material weakness relates to ineffective controls over the probability assessment for recognizing income from employee retention credits (ERCs), requiring a restatement of prior financial statements[129](index=129&type=chunk)[131](index=131&type=chunk) - Management is implementing remediation steps, including preparing technical accounting memorandums for material unusual transactions, to address the material weakness[132](index=132&type=chunk) PART II—OTHER INFORMATION [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 12 for details on legal proceedings, with management assessing no material financial impact from these matters - Refer to Note 12 of the consolidated financial statements for details on legal proceedings. Management believes any liability from these matters will not materially affect the Company's consolidated results of operations, financial position, or cash flows[134](index=134&type=chunk)[53](index=53&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This item is inapplicable to NTIC, qualifying as a smaller reporting company exempt from this disclosure requirement - This item is inapplicable to NTIC as a smaller reporting company[135](index=135&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports no unregistered equity sales or stock repurchases during the period, detailing remaining repurchase program availability - NTIC did not issue any unregistered equity securities during the three months ended November 30, 2023[136](index=136&type=chunk) | Period | Total Shares Purchased | Average Price Paid Per Share | | :----------------------------------- | :--------------------- | :--------------------------- | | September 1, 2023 through November 30, 2023 | 0 | $0 | - As of November 30, 2023, **$2,640,548** in shares of NTIC common stock remained available for repurchase under the stock repurchase program, which has no expiration date[141](index=141&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to NTIC for the reporting period - This item is not applicable[139](index=139&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to NTIC for the reporting period - This item is not applicable[140](index=140&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) Discloses the renewal of NTIC's Credit Agreement, extending the Credit Facility's maturity date to January 6, 2025 - On January 5, 2024, NTIC renewed its Credit Agreement with JPMorgan Chase Bank, N.A., extending the Credit Facility's maturity date from January 6, 2024, to **January 6, 2025**[142](index=142&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the quarterly report, including the renewed Line of Credit Note, CEO/CFO certifications, and XBRL data - Key exhibits include the renewed Line of Credit Note (Exhibit 10.1), certifications from the President/CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2), and Inline XBRL formatted financial statements (Exhibit 101)[143](index=143&type=chunk)
Northern Technologies International (NTIC) - 2023 Q4 - Annual Report
2023-11-21 21:28
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________ FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to __________________ Commission file number 001-11038 ____________________ NORTHERN TECHNOLOGIES INTERNATIONAL CORPO ...
Northern Technologies International (NTIC) - 2023 Q3 - Quarterly Report
2023-07-13 12:02
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________ FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to __________________ Commission File Number: 001-11038 ____________________ NORTHERN TECHNOLOGIES INTERNATIONAL ...
Northern Technologies International (NTIC) - 2023 Q2 - Earnings Call Transcript
2023-04-13 15:04
Northern Technologies International Corporation (NASDAQ:NTIC) Q2 2023 Earnings Conference Call April 13, 2023 9:00 AM ET Company Participants Patrick Lynch - CEO Matt Wolsfeld - CFO Conference Call Participants Gus Richard - Northland Capital Markets Tim Clarkson - Van Clemens & Co. Operator Good day, and thank you for standing by. Welcome to the Northern Technologies International Corporation Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is ...
Northern Technologies International (NTIC) - 2023 Q2 - Quarterly Report
2023-04-13 12:00
PART I—FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, detailing performance and financial position for the period - The financial statements are unaudited and prepared in conformity with U.S. GAAP, with operating results not necessarily indicative of the full fiscal year[26](index=26&type=chunk)[28](index=28&type=chunk) - The Company is evaluating the impact of ASU No. 2016-13 on credit losses, effective for fiscal years beginning after December 15, 2022[29](index=29&type=chunk) - The Company purchased an adjacent property for **$1.2 million** for warehousing and light industrial production, increasing property and equipment[31](index=31&type=chunk) - Future amortization expense for intangible assets is estimated at **$6,409,028**, with $294,873 remaining for fiscal 2023 and $589,746 annually for fiscal 2024-2027[34](index=34&type=chunk) - The Company entered into a new **$10.0 million** senior secured revolving line of credit with JPMorgan Chase Bank, N.A., maturing January 6, 2024, replacing a previous agreement with PNC Bank[38](index=38&type=chunk)[43](index=43&type=chunk) - Cash dividends of **$0.07 per common share** were declared on October 20, 2022, and January 20, 2023[44](index=44&type=chunk) - The Company's business is organized into two reportable segments: **ZERUST®** (corrosion prevention) and **Natur-Tec®** (bio-based and compostable polymer resins)[51](index=51&type=chunk) - Three joint ventures (South Korea, Sweden, and France) accounted for **68.1% of trade joint venture receivables** as of February 28, 2023[58](index=58&type=chunk) - Income tax expense for the six months ended February 28, 2023, was **$292,528**, largely due to foreign operations, with a full valuation allowance against U.S. deferred tax assets[63](index=63&type=chunk) - Subsequent to the reporting period, NTIC China entered into a **RMB 10,000,000 (USD $1.45 million)** revolving line of credit with China Construction Bank Corporation[64](index=64&type=chunk) [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20February%2028%2C%202023%20(unaudited)%20and%20August%2031%2C%202022%20(audited)) Balance Sheet Summary | Metric | Feb 28, 2023 | Aug 31, 2022 | Change | | :----- | :----------- | :----------- | :----- | | Total Assets | $86,710,505 | $86,193,953 | +$516,552 | | Total Current Assets | $40,176,602 | $40,234,881 | -$58,279 | | Property and Equipment, Net | $13,445,966 | $12,170,493 | +$1,275,473 | | Total Liabilities | $18,002,511 | $18,949,657 | -$947,146 | | Total Equity | $68,707,994 | $67,244,296 | +$1,463,698 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20(unaudited)%20for%20the%20Three%20and%20Six%20Months%20Ended%20February%2028%2C%202023%20and%202022) Operations Summary | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Net Sales | $18,270,825 | $16,748,639 | 9.1% | $38,223,591 | $34,942,052 | 9.4% | | Gross Profit | $6,403,186 | $4,984,335 | 28.5% | $12,756,310 | $10,687,265 | 19.4% | | Operating Income | $1,287,307 | $445,223 | 189.1% | $2,116,883 | $1,711,834 | 23.7% | | Net Income Attributable to NTIC | $885,248 | $182,847 | 384.1% | $1,387,490 | $4,676,606 | -70.4% | | Basic EPS | $0.10 | $0.02 | 400.0% | $0.15 | $0.51 | -70.6% | | Diluted EPS | $0.09 | $0.02 | 350.0% | $0.14 | $0.48 | -70.8% | [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(unaudited)%20for%20the%20Three%20and%20Six%20Months%20Ended%20February%2028%2C%202023%20and%202022) Comprehensive Income Summary | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | $993,819 | $295,985 | $1,627,499 | $5,017,818 | | Other Comprehensive Loss – Foreign Currency Translation Adjustment | $534,713 | $26,295 | $480,796 | ($382,769) | | Comprehensive Income Attributable to NTIC | $1,640,490 | $458,317 | $2,358,478 | $4,927,151 | [Consolidated Statements of Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Equity%20(unaudited)%20for%20the%20Three%20and%20Six%20Months%20Ended%20February%2028%2C%202023%20and%202022) Equity Summary | Metric | Feb 28, 2023 | Aug 31, 2022 | Change | | :----- | :----------- | :----------- | :----- | | Common Stock Shares Outstanding | 9,336,357 | 9,232,483 | +103,874 | | Common Stock Amount | $187,327 | $184,650 | +$2,677 | | Additional Paid-in Capital | $21,058,721 | $19,939,131 | +$1,119,590 | | Retained Earnings | $50,792,813 | $50,716,613 | +$76,200 | | Accumulated Other Comprehensive Loss | ($6,774,510) | ($7,245,132) | +$470,622 | | Total Equity | $68,707,994 | $67,244,296 | +$1,463,698 | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)%20for%20the%20Six%20Months%20Ended%20February%2028%2C%202023%20and%202022) Cash Flow Summary | Cash Flow Activity | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | Change | | :----------------- | :-------------------------- | :-------------------------- | :----- | | Net Cash Provided by Operating Activities | $2,204,834 | $2,118,728 | +$86,106 | | Net Cash Used in Investing Activities | ($1,923,336) | ($5,792,833) | +$3,869,497 | | Net Cash (Used in) Provided by Financing Activities | ($111,605) | $2,786,371 | -$2,897,976 | | Net Increase (Decrease) in Cash and Cash Equivalents | $117,221 | ($192,830) | +$310,051 | | Cash and Cash Equivalents at End of Period | $5,451,111 | $7,487,811 | -$2,036,700 | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(unaudited)) [Note 1. Interim Financial Information](index=11&type=section&id=Note%201.%20Interim%20Financial%20Information) - The accompanying unaudited consolidated financial statements present fairly the financial position, operations, equity changes, and cash flows in conformity with U.S. GAAP[26](index=26&type=chunk) - Operating results for the three and six months ended February 28, 2023, are **not necessarily indicative** of the results expected for the full fiscal year ending August 31, 2023[28](index=28&type=chunk) [Note 2. Accounting Pronouncements](index=11&type=section&id=Note%202.%20Accounting%20Pronouncements) - The Company is evaluating the impact of ASU No. 2016-13, which introduces an expected losses approach for credit losses on financial instruments, effective for fiscal years beginning after December 15, 2022[29](index=29&type=chunk) [Note 3. Inventories](index=12&type=section&id=Note%203.%20Inventories) Inventory Breakdown | Inventory Category | Feb 28, 2023 | Aug 31, 2022 | Change | | :----------------- | :----------- | :----------- | :----- | | Production materials | $5,629,424 | $6,496,656 | -$867,232 | | Finished goods | $9,550,815 | $9,845,073 | -$294,258 | | Total Inventories | $15,180,239 | $16,341,729 | -$1,161,490 | [Note 4. Property and Equipment, Net](index=12&type=section&id=Note%204.%20Property%20and%20Equipment%2C%20Net) Property and Equipment Breakdown | Category | Feb 28, 2023 | Aug 31, 2022 | Change | | :------- | :----------- | :----------- | :----- | | Land | $310,365 | $310,365 | $0 | | Buildings and improvements | $16,428,804 | $14,778,759 | +$1,650,045 | | Machinery and equipment | $5,792,363 | $5,643,320 | +$149,043 | | Less accumulated depreciation | ($9,085,566) | ($8,561,951) | -$523,615 | | Total Property and Equipment, Net | $13,445,966 | $12,170,493 | +$1,275,473 | - On February 28, 2023, the Company purchased an adjacent property for **$1,200,000**, including a 26,000 sq ft industrial building for warehousing and light industrial production[31](index=31&type=chunk) - Depreciation expense for the six months ended February 28, 2023, was **$488,838**, up from $430,991 in the prior year period[32](index=32&type=chunk) [Note 5. Intangible Assets, Net](index=12&type=section&id=Note%205.%20Intangible%20Assets%2C%20Net) Intangible Assets Breakdown | Category | Feb 28, 2023 (Net) | Aug 31, 2022 (Net) | Change | | :------- | :----------------- | :----------------- | :----- | | Patents and trademarks | $696,728 | $710,011 | -$13,283 | | Customer relationships | $5,712,300 | $5,923,867 | -$211,567 | | Total Intangible Assets, Net | $6,409,028 | $6,633,878 | -$224,850 | - Amortization expense for intangible assets was **$294,873** for the six months ended February 28, 2023, down from $315,631 in the prior year[34](index=34&type=chunk) Estimated Future Amortization Expense | Fiscal Year | Estimated Amortization Expense | | :---------- | :----------------------------- | | Remainder of fiscal 2023 | $294,873 | | Fiscal 2024 | $589,746 | | Fiscal 2025 | $589,746 | | Fiscal 2026 | $589,746 | | Fiscal 2027 | $589,746 | | Thereafter | $3,755,171 | | Total | $6,409,028 | [Note 6. Investments in Joint Ventures](index=13&type=section&id=Note%206.%20Investments%20in%20Joint%20Ventures) - The Company's consolidated financial statements do not include the accounts of its joint ventures, but amounts are adjusted to conform with U.S. GAAP[11](index=11&type=chunk)[35](index=35&type=chunk) NTIC's Share of Joint Venture Equity | Metric | Feb 28, 2023 | Aug 31, 2022 | | :----- | :----------- | :----------- | | NTIC's share of joint ventures' equity | $21,522,496 | $21,814,754 | | NTIC's share of joint ventures' undistributed earnings | $20,493,861 | $21,256,923 | Joint Venture Performance Summary | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Joint Ventures' Net Sales | $25,482,590 | $24,601,767 | $50,212,879 | $51,624,762 | | Joint Ventures' Net Income | $1,969,046 | $1,851,591 | $4,615,954 | $4,629,196 | | NTIC's share of equity in income from joint ventures | $1,128,731 | $922,832 | $2,318,135 | $2,297,581 | | NTIC's dividends received from joint ventures | $422,048 | $320,365 | $3,464,736 | $5,362,636 | [Note 7. Corporate Debt](index=14&type=section&id=Note%207.%20Corporate%20Debt) - The Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A. for a **$10.0 million** senior secured revolving line of credit, including a $5.0 million sublimit for standby letters of credit[38](index=38&type=chunk) - Borrowings of **$7,100,000** were outstanding as of February 28, 2023, under the new Credit Facility, which matures on January 6, 2024[38](index=38&type=chunk)[39](index=39&type=chunk) - The Credit Agreement contains covenants, including maintaining a **Fixed Charge Coverage Ratio of at least 1.25 to 1.00**, and restricts common stock repurchases or dividend payments if it would cause a default[41](index=41&type=chunk) - The previous loan agreement with PNC Bank, National Association, was terminated on January 6, 2023[43](index=43&type=chunk) [Note 8. Stockholders' Equity](index=15&type=section&id=Note%208.%20Stockholders'%20Equity) Cash Dividends Declared | Declaration Date | Amount | Record Date | Payable Date | | :--------------- | :----- | :---------- | :----------- | | Oct 20, 2022 | $0.07 | Nov 3, 2022 | Nov 16, 2022 | | Jan 20, 2023 | $0.07 | Feb 1, 2023 | Feb 15, 2023 | - **No shares of common stock were repurchased** during the six months ended February 28, 2023 and 2022[44](index=44&type=chunk) - **3,620 shares of common stock** were issued under the Employee Stock Purchase Plan on September 1, 2022[45](index=45&type=chunk) [Note 9. Net Income Per Common Share](index=16&type=section&id=Note%209.%20Net%20Income%20Per%20Common%20Share) EPS Calculation | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income attributable to NTIC | $885,248 | $182,847 | $1,387,490 | $4,676,606 | | Basic – weighted shares outstanding | 9,366,357 | 9,214,817 | 9,353,989 | 9,211,858 | | Diluted – weighted shares outstanding | 9,747,461 | 9,683,426 | 9,745,166 | 9,736,060 | | Basic net income per share | $0.10 | $0.02 | $0.15 | $0.51 | | Diluted net income per share | $0.09 | $0.02 | $0.14 | $0.48 | - Options outstanding to purchase **305,514 shares were excluded** from diluted EPS computation for the three and six months ended February 28, 2023, as they were anti-dilutive[47](index=47&type=chunk) [Note 10. Stock-Based Compensation](index=16&type=section&id=Note%2010.%20Stock-Based%20Compensation) Stock Option Activity | Stock Option Activity | Number of Options Outstanding | Weighted Average Exercise Price | | :-------------------- | :---------------------------- | :------------------------------ | | Outstanding as of Aug 31, 2022 | 1,544,727 | $10.23 | | Granted | 277,613 | $11.41 | | Exercised | (178,331) | $6.03 | | Outstanding as of Feb 28, 2023 | 1,644,009 | $10.52 | - Compensation expense recognized for the six months ended February 28, 2023, was **$674,971**, up from $465,766 in the prior year[50](index=50&type=chunk) - As of February 28, 2023, **$1,686,298 of unrecognized compensation expense** is expected to be recognized over 2.5 years[50](index=50&type=chunk) [Note 11. Segment and Geographic Information](index=17&type=section&id=Note%2011.%20Segment%20and%20Geographic%20Information) - The Company's two reportable segments are **ZERUST®** (rust and corrosion inhibiting products and services) and **Natur-Tec®** (bio-based and compostable polymer resins and finished products)[51](index=51&type=chunk) Segment Net Sales | Segment Net Sales | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | ZERUST® net sales | $14,458,747 | $13,117,777 | $29,828,748 | $27,541,562 | | Natur-Tec® net sales | $3,812,078 | $3,630,862 | $8,394,843 | $7,400,490 | | Total net sales | $18,270,825 | $16,748,639 | $38,223,591 | $34,942,052 | Geographic Net Sales | Geographic Net Sales | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Inside the U.S.A. to unaffiliated customers | $6,750,997 | $5,115,963 | $14,229,158 | $11,272,285 | | Outside the U.S.A. to joint ventures | $1,529,763 | $883,513 | $2,163,228 | $1,723,952 | | Outside the U.S.A. to unaffiliated customers | $9,990,065 | $10,749,163 | $21,831,205 | $21,945,815 | | Total net sales | $18,270,825 | $16,748,639 | $38,223,591 | $34,942,052 | - Fees for services provided to joint ventures were **$2,434,551** for the six months ended February 28, 2023, with Germany, Poland, and Japan being the top contributors[55](index=55&type=chunk) - Total property and equipment, net, by geographic location as of February 28, 2023, was **$6,891,392 in the United States**, **$5,885,664 in China**, and $668,910 in Other[56](index=56&type=chunk) [Note 12. Commitments and Contingencies](index=19&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) - Three joint ventures (South Korea, Sweden, and France) accounted for **68.1% of the Company's trade joint ventures receivables** as of February 28, 2023[58](index=58&type=chunk) - Management believes that the amount of liability, if any, with respect to legal matters **will not materially affect** the Company's consolidated results of operations, financial position, or cash flows[59](index=59&type=chunk) [Note 13. Fair Value Measurements](index=20&type=section&id=Note%2013.%20Fair%20Value%20Measurements) Fair Value of Assets | Asset | Fair value as of Feb 28, 2023 | Fair value as of Aug 31, 2022 | Level | | :---- | :---------------------------- | :---------------------------- | :---- | | Available for sale securities | $0 | $5,590 | Level 1 | - There were **no transfers between Level 1, Level 2, or Level 3** during the three and six months ended February 28, 2023 or 2022[61](index=61&type=chunk) [Note 14. Supplemental Cash Flow Information](index=20&type=section&id=Note%2014.%20Supplemental%20Cash%20Flow%20Information) Cash Paid for Interest | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cash paid for interest | $115,144 | $7,404 | $206,475 | $10,295 | [Note 15. Income Taxes](index=20&type=section&id=Note%2015.%20Income%20Taxes) Income Tax Expense | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income Tax Expense | $181,795 | $151,743 | $292,528 | $656,123 | - Income tax expense was largely due to foreign operations, and the Company has a **full valuation allowance against U.S. deferred tax assets**[63](index=63&type=chunk)[97](index=97&type=chunk) - U.S. income and foreign withholding taxes have not been recognized on cumulative undistributed foreign earnings of **$20,493,861** as of February 28, 2023, as they are considered indefinitely invested[98](index=98&type=chunk) [Note 16. Subsequent Events](index=20&type=section&id=Note%2016.%20Subsequent%20Events) - On April 7, 2023, NTIC China secured a **RMB 10,000,000 (USD $1.45 million)** revolving line of credit with China Construction Bank Corporation, with a one-year term and 3.25% annual interest rate[64](index=64&type=chunk)[65](index=65&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes financial performance, highlighting sales growth, margin improvements, and the impact of non-recurring items [Business Overview](index=22&type=section&id=Business%20Overview) - NTIC's primary business is **ZERUST® corrosion prevention products and services**, targeting automotive, electronics, military, and oil and gas industries[67](index=67&type=chunk)[68](index=68&type=chunk)[70](index=70&type=chunk) - NTIC also markets **Natur-Tec® bio-based and compostable polymer resins** and finished products, aiming to replace conventional petroleum-based plastics[67](index=67&type=chunk)[72](index=72&type=chunk) - International sales of ZERUST® are conducted through subsidiaries and joint ventures in China, India, ASEAN, Europe, and North America[69](index=69&type=chunk) [Impact of COVID-19](index=23&type=section&id=Impact%20of%20COVID-19) - COVID-19 and government restrictions continued to disrupt NTIC's business, especially in China, during the first six months of fiscal 2023[74](index=74&type=chunk) - Demand in China improved during the second quarter of fiscal 2023 after government restrictions were lifted, but **overall demand remained softened** for the six-month period[74](index=74&type=chunk) [Worldwide Supply Chain Disruptions](index=23&type=section&id=Worldwide%20Supply%20Chain%20Disruptions) - Worldwide supply chain disruptions continued during the first six months of fiscal 2023, causing **longer lead times**, the need for new raw material suppliers, and **increased costs**[75](index=75&type=chunk) - The Company experienced significantly longer shipping times and higher prices per shipping container due to ocean freight capacity issues[75](index=75&type=chunk) - While some improvements have occurred, these disruptions are expected to continue throughout the remainder of fiscal 2023 and could have a **material adverse effect** on NTIC's business[75](index=75&type=chunk) [Financial Overview](index=23&type=section&id=Financial%20Overview) Key Financial Metrics | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Consolidated Net Sales | $18,270,825 | $16,748,639 | 9.1% | $38,223,591 | $34,942,052 | 9.4% | | Cost of Goods Sold as % of Net Sales | 65.0% | 70.2% | -5.2 pp | 66.6% | 69.4% | -2.8 pp | | Equity in Income from Joint Ventures | $1,128,731 | $922,832 | 22.3% | $2,318,135 | $2,297,581 | 0.9% | | Total Operating Expenses | $7,497,356 | $6,708,853 | 11.7% | $15,392,113 | $13,778,779 | 11.8% | | Net Income Attributable to NTIC | $885,248 | $182,847 | 384.1% | $1,387,490 | $4,676,606 | -70.4% | | Diluted EPS | $0.09 | $0.02 | 350.0% | $0.14 | $0.48 | -70.8% | - **ZERUST®** products and services accounted for **78.0% of consolidated net sales** for the six months, increasing 8.3% YoY, while **Natur-Tec®** products accounted for **22.0%**, increasing 13.4% YoY[78](index=78&type=chunk) - Sales to the oil and gas industry **increased by 121.1% to $3,427,132** for the six months ended February 28, 2023[78](index=78&type=chunk) - The decrease in net income attributable to NTIC for the six months was primarily due to a **$3,951,550 remeasurement gain** from the Zerust India acquisition in the prior fiscal year, which did not recur[78](index=78&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Key Operational Metrics | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Net Sales | $18,270,825 | $16,748,639 | 9.1% | $38,233,591 | $34,942,052 | 9.4% | | Cost of Goods Sold | $11,867,639 | $11,764,304 | 0.9% | $25,467,281 | $24,254,787 | 5.0% | | Equity in Income from Joint Ventures | $1,128,731 | $922,832 | 22.3% | $2,318,135 | $2,297,581 | 0.9% | | Fees for Services Provided to Joint Ventures | $1,252,746 | $1,246,909 | 0.5% | $2,434,551 | $2,505,767 | -2.8% | | Selling Expenses | $3,418,717 | $2,971,391 | 15.1% | $6,926,151 | $6,209,149 | 11.5% | | General and Administrative Expenses | $3,084,189 | $2,518,788 | 22.4% | $6,214,788 | $5,115,135 | 21.5% | | Research and Development Expenses | $994,450 | $1,218,674 | -18.4% | $2,251,174 | $2,454,495 | -8.3% | - Net income attributable to NTIC for the six months ended February 28, 2023, **decreased by 70.4% to $1,387,490**, primarily due to the **$3,951,550 remeasurement gain** on the Zerust India acquisition in the prior year[99](index=99&type=chunk) [Net Sales](index=25&type=section&id=Net%20Sales) Net Sales Breakdown | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Total Net Sales | $18,270,825 | $16,748,639 | 9.1% | $38,223,591 | $34,942,052 | 9.4% | | Total ZERUST® sales | $14,458,747 | $13,117,777 | 10.2% | $29,828,748 | $27,541,562 | 8.3% | | ZERUST® oil & gas net sales | $1,805,235 | $577,921 | 212.4% | $3,427,132 | $1,549,737 | 121.1% | | Total Natur-Tec® sales | $3,812,078 | $3,630,862 | 5.0% | $8,394,843 | $7,400,490 | 13.4% | - ZERUST® oil and gas net sales increased significantly due to new opportunities with new and existing customers, though sales are subject to volatility from oil prices and order timing[83](index=83&type=chunk) - Natur-Tec® sales increased due to increased global demand, with recovery in many areas to pre-pandemic levels, though some customers are still operating below full capacity[84](index=84&type=chunk) [Cost of Goods Sold](index=26&type=section&id=Cost%20of%20Goods%20Sold) COGS Analysis | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Cost of Goods Sold | $11,867,639 | $11,764,304 | 0.9% | $25,467,281 | $24,254,787 | 5.0% | | Cost of Goods Sold as % of Net Sales | 65.0% | 70.2% | -5.2 pp | 66.6% | 69.4% | -2.8 pp | - The decrease in cost of goods sold as a percentage of net sales was primarily due to passing along price increases to customers and increased sales of **higher-margin ZERUST® oil & gas products**[85](index=85&type=chunk) [Equity in Income from Joint Ventures](index=27&type=section&id=Equity%20in%20Income%20from%20Joint%20Ventures) Joint Venture Income | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Equity in Income from Joint Ventures | $1,128,731 | $922,832 | 22.3% | $2,318,135 | $2,297,581 | 0.9% | - The increase was primarily due to an **improvement in gross margins and operating profits** at the joint ventures[87](index=87&type=chunk) - NTIC's equity in income from EXCOR (Germany) was **$1,547,944** for the six months ended February 28, 2023, compared to $1,499,821 in the prior year[87](index=87&type=chunk) [Fees for Services Provided to Joint Ventures](index=27&type=section&id=Fees%20for%20Services%20Provided%20to%20Joint%20Ventures) Joint Venture Service Fees | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Fees for Services Provided to Joint Ventures | $1,252,746 | $1,246,909 | 0.5% | $2,434,551 | $2,505,767 | -2.8% | - Net sales at the joint ventures **decreased by 2.7% to $50,212,879** for the six months ended February 28, 2023[88](index=88&type=chunk) [Selling Expenses](index=27&type=section&id=Selling%20Expenses) Selling Expense Analysis | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Selling Expenses | $3,418,717 | $2,971,391 | 15.1% | $6,926,151 | $6,209,149 | 11.5% | | Selling Expenses as % of Net Sales | 18.7% | 17.7% | +1.0 pp | 18.1% | 17.8% | +0.3 pp | - Increases were primarily due to increased personnel expense and expenses for the startup of a new indirect, majority-owned subsidiary in Taiwan[89](index=89&type=chunk) [General and Administrative Expenses](index=27&type=section&id=General%20and%20Administrative%20Expenses) G&A Expense Analysis | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | General and Administrative Expenses | $3,084,189 | $2,518,788 | 22.4% | $6,214,788 | $5,115,135 | 21.5% | | G&A Expenses as % of Net Sales | 16.9% | 15.0% | +1.9 pp | 16.3% | 14.6% | +1.7 pp | - Increases were primarily due to increased professional services, travel, and personnel expenses, as well as startup costs for a new indirect, majority-owned subsidiary in Taiwan[90](index=90&type=chunk) [Research and Development Expenses](index=28&type=section&id=Research%20and%20Development%20Expenses) R&D Expense Analysis | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Research and Development Expenses | $994,450 | $1,218,674 | -18.4% | $2,251,174 | $2,454,495 | -8.3% | - The decrease was primarily due to decreases in expenses associated with development efforts[92](index=92&type=chunk) [Interest Income](index=28&type=section&id=Interest%20Income) Interest Income Analysis | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Interest Income | $3,451 | $9,909 | -65.2% | $9,619 | $20,852 | -53.9% | - The decrease was primarily due to changes in the invested cash balances[93](index=93&type=chunk) [Interest Expense](index=28&type=section&id=Interest%20Expense) Interest Expense Analysis | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Interest Expense | $115,144 | $7,404 | 1455.2% | $206,475 | $10,295 | 1905.6% | - The increase was primarily due to **increased outstanding borrowings** under the line of credit and **increased interest rates**[94](index=94&type=chunk) [Remeasurement Gain on Acquisition of Equity Method Investee](index=28&type=section&id=Remeasurement%20Gain%20on%20Acquisition%20of%20Equity%20Method%20Investee) Remeasurement Gain | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Remeasurement Gain | $0 | $0 | $0 | $3,951,550 | - A gain of **$3,951,550** was recognized in the prior year period (six months ended Feb 28, 2022) due to the acquisition of the remaining 50% ownership interest in Zerust India[95](index=95&type=chunk) [Income Before Income Tax Expense](index=28&type=section&id=Income%20Before%20Income%20Tax%20Expense) Pre-Tax Income | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Income Before Income Tax Expense | $1,175,614 | $447,728 | 162.6% | $1,920,027 | $5,673,941 | -66.1% | [Income Tax Expense](index=28&type=section&id=Income%20Tax%20Expense) Income Tax Analysis | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Income Tax Expense | $181,795 | $151,743 | 19.8% | $292,528 | $656,123 | -55.4% | - Income tax expense was largely due to foreign operations, and the Company has a **full valuation allowance against U.S. deferred tax assets**[63](index=63&type=chunk)[97](index=97&type=chunk) [Net Income Attributable to NTIC](index=28&type=section&id=Net%20Income%20Attributable%20to%20NTIC) Net Income Analysis | Metric | 3 Months Ended Feb 28, 2023 | 3 Months Ended Feb 28, 2022 | % Change (YoY) | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | % Change (YoY) | | :----- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Net Income Attributable to NTIC | $885,248 | $182,847 | 384.1% | $1,387,490 | $4,676,606 | -70.4% | | Diluted EPS | $0.09 | $0.02 | 350.0% | $0.14 | $0.48 | -70.8% | - The six-month decrease was primarily due to the **$3,951,550 remeasurement gain** on the Zerust India acquisition recognized in the prior fiscal year, which did not recur[99](index=99&type=chunk) - Quarterly net income is expected to **remain volatile** due to the financial performance of subsidiaries and joint ventures, and sales of ZERUST® oil and gas and Natur-Tec® products[101](index=101&type=chunk) [Other Comprehensive Income - Foreign Currency Translations Adjustment](index=29&type=section&id=Other%20Comprehensive%20Income%20-%20Foreign%20Currency%20Translations%20Adjustment) - Fluctuations in the U.S. dollar against the Euro and other foreign currencies caused changes in the foreign currency translation adjustment[102](index=102&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity Summary | Metric | Feb 28, 2023 | Aug 31, 2022 | Change | | :----- | :----------- | :----------- | :----- | | Working Capital | $23,998,313 | $23,169,480 | +$828,833 | | Cash and Cash Equivalents | $5,451,111 | $5,333,890 | +$117,221 | - NTIC entered into a new **$10.0 million** senior secured revolving line of credit with JPMorgan Chase Bank, N.A., with **$7.1 million outstanding** as of February 28, 2023[104](index=104&type=chunk) - The Company expects to fund operations, investments, capital expenditures, and debt repayments through existing cash, forecasted cash flows, anticipated distributions from joint ventures, and financing arrangements for at least the next 12 months[111](index=111&type=chunk) - NTIC plans to continue investing in Zerust India, NTIC China, Zerust Mexico, NTI Europe, joint ventures, R&D, oil and gas technology, and Natur-Tec® bio-plastics business[111](index=111&type=chunk) - NTIC may transition joint ventures through acquisitions of remaining ownership interests, formation of new subsidiaries, or dissolutions, which could materially impact results[112](index=112&type=chunk) [Sources of Cash and Working Capital](index=29&type=section&id=Sources%20of%20Cash%20and%20Working%20Capital) Working Capital and Cash | Metric | Feb 28, 2023 | Aug 31, 2022 | Change | | :----- | :----------- | :----------- | :----- | | Working Capital | $23,998,313 | $23,169,480 | +$828,833 | | Cash and Cash Equivalents | $5,451,111 | $5,333,890 | +$117,221 | - A new **$10.0 million** senior secured revolving line of credit with JPMorgan Chase Bank, N.A. was established on January 6, 2023, with **$7.1 million outstanding**[104](index=104&type=chunk) - The Credit Agreement requires maintaining a **Fixed Charge Coverage Ratio of at least 1.25 to 1.00** and restricts stock repurchases or dividends if it causes a default[107](index=107&type=chunk) - NTIC was **in compliance with all debt covenants** as of February 28, 2023[109](index=109&type=chunk) [Uses of Cash and Cash Flows](index=31&type=section&id=Uses%20of%20Cash%20and%20Cash%20Flows) Cash Flow Summary | Cash Flow Activity | 6 Months Ended Feb 28, 2023 | 6 Months Ended Feb 28, 2022 | Change | | :----------------- | :-------------------------- | :-------------------------- | :----- | | Net Cash Provided by Operating Activities | $2,204,834 | $2,118,728 | +$86,106 | | Net Cash Used in Investing Activities | ($1,923,336) | ($5,792,833) | +$3,869,497 | | Net Cash Used in Financing Activities | ($111,605) | $2,786,371 (Provided) | -$2,897,976 | - Trade receivables (excluding joint ventures) increased by $538,087, with average days outstanding increasing to **75 days**. Trade receivables from joint ventures increased by $917,073, with average days outstanding increasing to **256 days** due to timing of a large order[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - Receivables for services provided to joint ventures decreased by $656,210, with average days to pay decreasing to **80 days**[121](index=121&type=chunk) [Share Repurchase Plan](index=32&type=section&id=Share%20Repurchase%20Plan) - The Board authorized a **$3,000,000 share repurchase program** on January 15, 2015, with no expiration date[124](index=124&type=chunk) - **No shares were repurchased** during the six months ended February 28, 2023[124](index=124&type=chunk) - As of February 28, 2023, **$2,640,548 remained available** for repurchase under the program[124](index=124&type=chunk) [Cash Dividends](index=32&type=section&id=Cash%20Dividends) Dividend Declarations | Declaration Date | Amount | Record Date | Payable Date | | :--------------- | :----- | :---------- | :----------- | | Oct 20, 2022 | $0.07 | Nov 3, 2022 | Nov 16, 2022 | | Jan 20, 2023 | $0.07 | Feb 1, 2023 | Feb 15, 2023 | - The declaration of future dividends is **not guaranteed** and will be determined by the Board based on existing conditions, including earnings, financial condition, and financing agreements[125](index=125&type=chunk) [Capital Expenditures and Commitments](index=32&type=section&id=Capital%20Expenditures%20and%20Commitments) - Capital expenditures were **$1,871,903** for the six months ended February 28, 2023, mainly for a new warehouse facility, equipment, and improvements[126](index=126&type=chunk) - This includes the purchase of an adjacent 26,000 square foot industrial building for **$1,200,000** for warehousing and light industrial production[31](index=31&type=chunk)[126](index=126&type=chunk) - NTIC expects to spend **$2,000,000 to $2,500,000** on capital expenditures in fiscal 2023, including $700,000 for renovations on the newly acquired property[126](index=126&type=chunk) [Inflation and Seasonality](index=33&type=section&id=Inflation%20and%20Seasonality) - Inflationary pressures **adversely affected gross margins** in the first six months of fiscal 2023 and are expected to persist into at least the third quarter[128](index=128&type=chunk) - The business experiences seasonality, with the second fiscal quarter negatively impacted by the Chinese New Year, North American holiday season, and lower winter temperatures[128](index=128&type=chunk) [Market Risk](index=33&type=section&id=Market%20Risk) - NTIC is exposed to **foreign currency exchange rate risk**, particularly with the Euro, Japanese Yen, Indian Rupee, Chinese Renminbi, South Korean Won, and English Pound against the U.S. Dollar[130](index=130&type=chunk) - Fluctuations in foreign currency exchange rates could lead to declines in reported net income, but changes in joint venture equity income are reflected as translation adjustments[130](index=130&type=chunk) - The Company is exposed to **commodity price changes**, primarily for plastic resins[131](index=131&type=chunk) - Outstanding advances under the Credit Facility bear interest at a floating rate, exposing the Company to **interest rate risk**[131](index=131&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - **No material changes** to critical accounting policies and estimates from the prior annual report on Form 10-K[132](index=132&type=chunk) [Accounting Pronouncements](index=33&type=section&id=Accounting%20Pronouncements) - Refer to Note 2 for details on accounting pronouncements[133](index=133&type=chunk) [Forward-Looking Statements](index=33&type=section&id=Forward-Looking%20Statements) - Forward-looking statements are subject to uncertainties and factors that could cause actual results to differ materially, including worldwide supply chain disruptions, COVID-19 impact, and global economic conditions[135](index=135&type=chunk)[136](index=136&type=chunk) - Risks include the effect of the **Russia-Ukraine war** on commodity prices and joint venture profitability, and increasing tensions between the **U.S. and China** affecting NTIC China's operations[136](index=136&type=chunk) - Variability in sales of ZERUST® oil & gas and Natur-Tec® products, and equity income from joint ventures, can lead to quarterly fluctuations in earnings[136](index=136&type=chunk) - The Company assumes **no obligation to update**, amend, or clarify forward-looking statements[138](index=138&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) NTIC is exposed to market risks from foreign currency, commodity prices, and interest rates on its floating-rate credit facility - NTIC is exposed to **foreign currency exchange rate risk**, primarily with the Euro, Japanese Yen, Indian Rupee, Chinese Renminbi, South Korean Won, and English Pound against the U.S. Dollar[139](index=139&type=chunk)[140](index=140&type=chunk) - Fluctuations in foreign currency exchange rates could result in declines in reported net income, but changes in joint venture equity income are reflected as foreign currency translation adjustments[140](index=140&type=chunk) - The Company is exposed to **commodity price changes**, mainly for plastic resins used in its products[141](index=141&type=chunk) - Borrowings under NTIC's Credit Facility with JPM bear interest at a floating rate, exposing the Company to **interest rate risk**[141](index=141&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that NTIC's disclosure controls and procedures were effective as of February 28, 2023 [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - NTIC's disclosure controls and procedures were evaluated by management, including the CEO and CFO, and concluded to be **effective** as of February 28, 2023[142](index=142&type=chunk) [Changes in Internal Control over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - **No material changes** in internal control over financial reporting occurred during the quarter, other than changes implemented to continue integrating Zerust India's internal controls with NTIC's[143](index=143&type=chunk) PART II—OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 12, where management believes any liability from legal proceedings will not be material - Refer to Note 12 of the consolidated financial statements for details on legal proceedings[145](index=145&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) The company discloses a revised risk factor concerning its operations and the evolving political/economic conditions in China - NTIC, as a smaller reporting company, discloses a revised risk factor regarding its **operations in China**[146](index=146&type=chunk) - Risks in China include evolving political, economic, and social conditions, **U.S.-China tensions**, changes in laws/regulations, and potential adverse effects from local electric power shortage regulations[146](index=146&type=chunk)[147](index=147&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity securities were sold, and no shares were repurchased during the second fiscal quarter [Recent Sales of Unregistered Equity Securities](index=38&type=section&id=Recent%20Sales%20of%20Unregistered%20Equity%20Securities) - **No unregistered equity securities** were issued during the three months ended February 28, 2023[148](index=148&type=chunk) [Issuer Purchases of Equity Securities](index=39&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) Share Repurchase Activity | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs | | :----- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | Dec 1, 2022, through Dec 31, 2022 | 0 | $0 | 0 | (1) | | Jan 1, 2023, through Jan 31, 2023 | 0 | $0 | 0 | (1) | | Feb 1, 2023, through Feb 28, 2023 | 0 | $0 | 0 | (1) | | Total | 0 | $0 | 0 | (1)(2) | - As of February 28, 2023, **$2,640,548 remained available** for repurchase under the stock repurchase program[152](index=152&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Company - This item is not applicable[153](index=153&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - This item is not applicable[154](index=154&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the Company - This item is not applicable[155](index=155&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including certifications and the new Credit Agreement - Exhibits include the Restated Certificate of Incorporation, Credit Agreement with JPMorgan Chase Bank, N.A., certifications from the CEO and CFO, and Inline XBRL formatted financial statements[157](index=157&type=chunk) SIGNATURES [SIGNATURES](index=41&type=section&id=SIGNATURES) The report is duly signed by the Chief Financial Officer on behalf of the company - The report was signed by Matthew C. Wolsfeld, CPA, Chief Financial Officer, on April 13, 2023[160](index=160&type=chunk)
Northern Technologies International (NTIC) - 2023 Q1 - Earnings Call Transcript
2023-01-12 19:09
Northern Technologies International Corporation (NASDAQ:NTIC) Q1 2023 Earnings Conference Call January 12, 2023 9:00 AM ET Company Participants Patrick Lynch - CEO Matt Wolsfeld - CFO Conference Call Participants Tim Clarkson - Van Clemens & Co Gregory Weaver - Invicta Fund Operator Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Northern Technologies International Corporation First Quarter 2023 Earnings Conference Call and Webcast. [Operator Instructions]. As part of today's d ...