Northern Technologies International (NTIC) - 2024 Q2 - Quarterly Results

Financial and Operating Highlights for Second Quarter Fiscal 2024 NTIC achieved record Q2 FY2024 performance with strong sales growth, significant profitability improvement, and enhanced liquidity Management Commentary 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] - Gross margin improved significantly, reaching 40% in Q2, a 5.5 percentage point increase year-over-year, due to successful strategic execution[2] - 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] Key Financial & Operating Highlights 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] - 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] Financial Performance Analysis This section analyzes NTIC's net sales, profitability, and joint venture performance for Q2 and H1 FY2024 Net Sales Performance 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 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] Joint Venture Performance 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] Financial Position NTIC's balance sheet shows improved liquidity with a shift from net debt to net cash and stable working capital Balance Sheet and Liquidity 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] Consolidated Financial Statements This section presents NTIC's unaudited consolidated balance sheets and statements of operations for Q2 and H1 FY2024 Consolidated Balance Sheets 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 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 This section provides reconciliation of GAAP to non-GAAP financial measures, primarily adjusting for amortization expense Reconciliation of GAAP to Non-GAAP Measures 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] 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 This section provides an overview of NTIC's business and important forward-looking statement disclosures About Northern Technologies International Corporation 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] - The company also sells a portfolio of bio-based and biodegradable polymer products under the Natur-Tec® brand[16] Forward-Looking Statements 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] - The company directs investors to its Form 10-K and 10-Q filings for a more comprehensive understanding of business risks[17]