Northern Technologies International Corp - Earnings Call - Q4 2025

Executive Summary

• Q4 2025 revenue was $22.315M, essentially in-line with S&P Global consensus ($22.4M*), but EPS missed materially: non-GAAP adjusted EPS was -$0.06 vs $0.08* consensus; GAAP diluted EPS was -$0.12, reflecting gross margin compression and elevated operating expenses. Values retrieved from S&P Global.
• Segment mix: ZERUST industrial grew 5.8% YoY while oil & gas fell 29.4% YoY due to a large prior-year order shift; Natur-Tec declined 10% YoY on pricing dynamics and order timing.
• Management highlighted a multi-year Brazil FPSO contract (~R$70M/US$13M) as a catalyst for oil & gas, ramping through FY26–FY28, albeit with a service component that trims margins vs product-only sales.
• FY25 effective tax rate spiked to 67.5% due to mix and low pre-tax income; management expects normalization as North America profitability improves. Focus for FY26: hold OpEx roughly flat, expand gross margins, and drive higher-margin sales.

What Went Well and What Went Wrong

What Went Well

• ZERUST industrial resilience: Q4 industrial net sales rose 5.8% YoY to $14.205M, lifting total ZERUST to 77% of revenue.
• China momentum: NTIC China sales grew 14% in FY25 to $16.2M and 12% in Q4 to ~$4.0M; exposure to U.S. tariffs is limited given domestic demand. “We expect demand in China will continue to improve in fiscal 2026”.
• Strategic oil & gas win: Brazil FPSO contract (~US$13M) validates offshore capabilities and expands the pipeline internationally, positioning for FY26 growth.

What Went Wrong

• EPS miss and margin compression: Gross margin fell to 37.9% in Q4 (vs 43.8% LY), with GAAP diluted EPS at -$0.12; non-GAAP adjusted EPS -$0.06.
• Oil & gas and Natur-Tec softness: Q4 oil & gas net sales -29.4% YoY due to prior-year timing; Natur-Tec -10% YoY on pricing dynamics and order delays.
• Elevated OpEx and tax rate: Q4 OpEx was 43.5% of sales (vs 40.7% LY); FY25 effective tax rate surged to 67.5% given foreign subsidiary tax expense and low pre-tax income, pressuring net income.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to NTIC's Fourth Quarter 2025 Earnings Conference Call and Webcast. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Today's conference is being recorded. As part of the discussion today, the representatives from NTIC will be making certain forward-looking statements regarding NTIC's future financial and operating results, as well as their business plans, objectives, and expectations. Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and that NTIC desires to avail itself of the protections of the safe harbor for these statements.

Please also be advised that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in NTIC's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and recent press releases. Please read these reports and other future filings that NTIC will make with the SEC. NTIC disclaims any duty to update or revise its forward-looking statements. I will now hand the conference call over to Mr. Patrick Lynch, NTIC CEO. Please go ahead, sir.

Patrick Lynch (CEO)

Good morning. I'm Patrick Lynch, NTIC's CEO, and I'm here with Matt Wolsfeld, NTIC's CFO. Please note that a press release regarding our fourth quarter and full-year fiscal 2025 financial results was issued earlier this morning and is available at ntic.com. During today's call, we will review various key aspects of our fiscal 2025 fourth quarter and full-year financial results, provide a brief business update, and then conclude with a question-and-answer session. Please note that when we discuss year-over-year performance, we are referring to the fourth quarter and full year of our fiscal 2025 in comparison to the fourth quarter and full year of last fiscal year.

Fiscal 2025 was marked by order timing shifts and selective softness in our Zerust oil and gas and Natur-Tec markets, so NTIC used this period to strengthen its competitive position and to execute strategic initiatives that we believe will enhance our long-term growth potential. We accelerated product innovation within Natur-Tec, advanced new Zerust solutions across global industrial markets, and pursued emerging opportunities in the South American offshore oil and gas sector. These actions have expanded our pipeline, sharpened our focus, and positioned NTIC to re-accelerate growth and improve profitability in fiscal 2026 and beyond. In fiscal 2026, we expect to start reaping the benefits gained from the strategic investments NTIC made over the past three years to upgrade our global operations and support future growth.

We are also focused on flattening our operating expenses while expanding gross margins and driving sales in the higher-margin parts of our business, which we expect will improve our profitability and strengthen our balance sheet in fiscal 2026. While we anticipate macroeconomic headwinds to persist, especially in Europe, we believe NTIC is positioned to deliver growth and improved profitability across many of our key markets in the coming fiscal year. With this overview, let's examine the drivers of the fourth quarter in more detail. For the fourth quarter ended August 31, 2025, our total consolidated net sales decreased 4.4% to $22.3 million as compared to the fourth quarter ended August 31, 2024. Broken down by business unit, this included a 29.4% decrease in Zerust oil and gas net sales and a 10% decrease in Natur-Tec net sales, partially offset by a 5.8% increase in Zerust industrial net sales.

Turning to our joint venture sales, which we do not consolidate in our financial statements, total net sales for the fiscal 2025 fourth quarter by our joint ventures increased year-over-year by 4.7% to $24.4 million. For fiscal 2025, joint venture sales declined 4.9%, reflecting the continued impact of high energy prices and regional political pressures on the European economy, as well as significantly increased uncertainty related to U.S. trade and economic policies and the potential impacts this will have on global supply chains. We continue to closely monitor trends across our European markets for signs of stabilization following years of subdued demand as governments begin to implement target economic stimulus packages. We expect that any economic recovery from these stimulus packages will lead to a positive impact on our joint venture operating income in future periods, especially in Germany. Improving sales trends at our wholly-owned NTIC China subsidiary continue.

Fiscal 2025 fourth quarter net sales at NTIC China increased by 12% to $4 million. For fiscal 2025, NTIC China sales increased 14% to $16.2 million, the second strongest year of sales we have experienced in this market. NTIC China sales for fiscal 2025 demonstrate that demand continues to grow in this geography. Furthermore, given that the majority of NTIC China's sales are for domestic Chinese consumption, we believe NTIC China's exposure to U.S. tariffs is limited. We expect demand in China will continue to improve in fiscal 2026, helping to support higher incremental sales and profitability in this market. We continue to believe that China will likely become a significant market for our industrial and bioplastic segments, so we'll continue to take steps to enhance our operations in this geography. Now, moving on to zero-export oil and gas.

Fourth quarter of fiscal 2025, Zerust oil and gas sales were $3 million compared to $4.2 million in the same period last year. As a reminder, Zerust oil and gas sales for the fourth quarter last year benefited from approximately $600,000 in sales that shifted from the third quarter due to timing. On an annual basis, Zerust oil and gas sales were $7.3 million compared to $9.2 million for the prior full fiscal year. This decline was primarily due to timing of orders. We have continually invested in Zerust oil and gas to enhance our sales team and add resources to support future growth. This has improved our sales pipeline as the size and number of opportunities have expanded among both new and existing customers. Our pipeline includes global opportunities to protect above-ground oil storage tanks, pipeline casings, and offshore oil rigs from corrosion.

The nature of this industry will always cause certain fluctuations in Zerust oil and gas sales. Nevertheless, we still expect to see Zerust oil and gas sales and profitability improve significantly in fiscal 2026 as we leverage these investments and rein in operating expense growth. Earlier this month, we announced that our 85%-owned subsidiary, Zirus Brazil, secured a new three-year contract for a major offshore project with a leading global EPC company. Under this agreement, Zirus Brazil will provide advanced corrosion protection solutions for floating production, storage, and offloading units, or FPSOs, with an estimated total value of approximately BRL 70 million, which is equal to approximately $13 million based on current exchange rates. The project started in Q4 and is expected to ramp up during our fiscal 2026 and then continue through calendar 2028.

This is a significant validation of our engineering capabilities, scalability of our Zerust oil and gas business, and the reputation we've built as a trusted partner to leading offshore operators. Brazil represents one of the fastest-growing deep-water markets globally, and we believe this win provides a strong foundation for continued growth and expansion across international oil and gas markets. Turning to our Natur-Tec bioplastics business, fourth quarter Natur-Tec sales were $5.1 million, representing a 10% year-over-year decline in Natur-Tec sales, primarily due to pricing dynamics and the timing of orders. For example, during the past year, a large North American customer of our resin compounds delayed purchasing for nearly six months as they made tooling adjustments to increase the output of their manufacturing line.

While this contributed to Natur-Tec's decline in sales for fiscal 2025, we have already received orders for the first and second quarters of the new fiscal year for the equivalent of what this customer purchased from us in all of fiscal 2025. It's also worth mentioning that in Q4 of fiscal 2025, we entered into a preferred supplier agreement with the nation's leading specialized distributor for Janssen, food service and industrial packaging. We expect this new relationship to translate into higher Natur-Tec sales growth in fiscal 2026. We are also working on several larger opportunities for our Natur-Tec solutions that we believe hold significant promise to benefit our sales in the coming quarters, including advancing the compostable food packaging solution we mentioned on our last call. Overall, we believe Natur-Tec is a best-in-class compostable plastic business that is well-positioned for significant further growth in the U.S. and abroad.

While fiscal 2025 was more challenging than we expected at the beginning of the fiscal year, we remain steadfast on pursuing our strategic growth plan. We are confident in the direction we are headed. Before I turn the call over to Matt, I wanted to acknowledge the hard work and dedication of our global team of both employees and joint venture partners. Our success and our ability to navigate more complex economic periods are a direct result of their efforts. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fourth quarter and full fiscal year 2025.

Matthew Wolsfeld (CFO)

Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales decreased 1.0% in fiscal 2025 and decreased 4.4% in fiscal 2025 fourth quarter because of the trends Patrick reviewed in his prepared remarks. Sales across our global joint ventures increased 4.7% in the fourth quarter. Joint venture operating income in the fourth quarter increased 6.6% compared to the prior fiscal year period, primarily due to the corresponding increase in net sales. For fiscal 2025, sales across our global joint ventures decreased 4.9%, while joint venture operating income decreased 9.8% compared to the prior fiscal period. Total operating expenses for the fiscal 2025 fourth quarter increased 2.2%, or $9.7 million for the fiscal 2025, primarily due to strategic investments in Zerust oil and gas, sales infrastructure, and increased personnel expenses, including new hires, benefits, and higher travel and professional fees.

As a percentage of net sales, operating expenses were 43.5% for the fourth quarter compared to 40.7% for the prior fiscal year period. For fiscal 2025, operating expenses as a percentage of net sales were 44.7% compared to 41.6% for the prior fiscal year. Gross profit as a percentage of net sales was 37.9% during the three months ended August 31, 2025, compared to 43.8% during the prior fiscal year period. Gross profit as a percentage of net sales was 37.6% for the fiscal year ended August 31, 2025, compared to 39.7% for the prior fiscal year. Lower gross margin for the fourth quarter and full year periods were primarily due to a less profitable mix of sales.

There were a couple of one-time items that impacted profitability during the fiscal year, including a $1.1 million benefit to other income due to the receipt of cash from the employee retention credit that was payable in February of 2025. Secondly, NTIC recognized $387,000 in other expense during the fourth quarter of 2025 as NTIC's Chinese subsidiary was assessed penalties from Ningbo Customs, a customs authority in China, as a result of a technical classification matter. We have since updated our export documents and internal review procedures and believe this issue has now been fully resolved. We also experienced an increase in our effective tax rate for fiscal 2025, which was 67.5% for fiscal 2025 compared to 17.3% in the prior fiscal year.

The changes primarily reflect increased income tax expense in our foreign subsidiaries and is primarily due to the increase in income tax expense as compared to reduced consolidated pre-tax income. As a result, our effective tax rate was unusually high and volatile in fiscal 2025. We expect the effective rate to normalize in future periods when additional profits are recognized in our North American operations. NTIC reported net loss of $1.1 million, or $0.11 per diluted share for the fiscal 2025 fourth quarter, compared to net income of $1.8 million, or $0.19 per diluted share for the fiscal 2024 fourth quarter. For full-to-full year, NTIC reported net income of $18,000, or $0.00 per diluted share, compared to $5.4 million, or $0.55 per diluted share for the fiscal 2024 full year.

For the fiscal 2025 fourth quarter, NTIC's non-GAAP adjusted net loss was $607,000, or $0.06 per diluted share, compared to non-GAAP adjusted net income of $1.9 million, or $0.20 per diluted share for the fiscal 2024 fourth quarter. For the fiscal 2025, non-GAAP adjusted net loss was $12,000, or $0.00 per diluted share, compared to net income of $5.8 million, or $0.59 per diluted share for fiscal 2024. A reconciliation of GAAP to non-GAAP financial measures is available in our fourth quarter fiscal year 2025 earnings press release that was issued this morning. As of August 31, 2025, working capital was $20.4 million, including $3.7 million in cash and cash equivalents, compared to $23.7 million, including $5 million in cash and cash equivalents as of August 31, 2024. As of August 31, 2025, we had outstanding debt of $12.2 million.

This included $9.3 million in borrowings under our existing revolving line of credit, compared to $4.3 million as of August 31, 2024. Reducing debt through positive operating cash flow and improving working capital efficiencies will be a strategic focus for fiscal 2026. We generated $2.4 million in operating cash flows for the fiscal year ended August 31, 2025. At year-end, the company had $28.6 million of investment in joint ventures, of which 51.7%, or $14.8 million, was in cash, with the remaining balance primarily invested in other working capital. During fiscal 2025 fourth quarter, NTIC's board of directors declared a quarterly cash dividend of $0.01 per common share that was payable on August 13, 2025, to stockholders of record on July 30, 2025. To conclude our prepared remarks, we are optimistic NTIC's momentum is building across many parts of our business.

We believe our multi-year strategies are working, our global markets are expanding, and our team is delivering results. With a clear vision and disciplined execution, we're confident that the foundation we've built will drive continued growth, stronger profitability, and meaningful value creation for our shareholders. With this overview, Patrick and I are happy to take your questions.

Operator (participant)

Thank you. Ladies and gentlemen, as a reminder to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Again, that's star one one to ask a question. One moment for our first question. We have a question coming from the line of Tim Clarkson with Van Clemens, your line is now open.

Timothy Clarkson (Stock Broker)

Hey, Patrick. Hey, Matt. You know, obviously, this year was not what everyone wanted, but just a couple of background questions. In general, are the income taxes on our international business, are they higher than the taxes domestically here in the United States?

Matthew Wolsfeld (CFO)

It's not that it's higher. It's that essentially what you have is you have a situation where with all of our subsidiaries, let's say the main five subsidiaries, they have a standard statutory tax rate, you know, somewhere between 20% and 33-34%, depending on the country. And so all of those subsidiaries are profitable, so they generate tax expense. If you look at it from an effective tax rate when you put it all together, you have essentially the numerator in the effective tax rate calculation as a fixed number. There isn't a significant amount of, there isn't a significant amount of tax expense from North America. However, we do have tax expense from North America based off of the, you know, we recognize here based off of the royalties and dividends that we receive from JVs.

The issue that we have is that the denominator in the calculation, there's very little profit, especially in fourth quarter, that went into that number. And so what it created is a very large effective tax rate for fourth quarter. The expectations are that going forward, as there is more profitability, specifically in North America, the denominator in that calculation is going to be increased. You know, for example, if we had more profit in North America, we would have had the same numerator, the same tax expense, but the denominator in the calculation would have been significantly higher and would have led to a more normalized effective tax rate. It's just the nature of how the tax provision calculation works, especially when we had, you know, I would say a difficult fourth quarter from a North American standpoint.

I do expect it to normalize in fiscal 2026, you know, as we get back to similar profit levels that we had before.

Timothy Clarkson (Stock Broker)

Okay. Sure. I know you mentioned that you're looking to cut expenses in the company too. I mean, how realistic, how much money do you think you can cut to improve profitability?

Matthew Wolsfeld (CFO)

The goal at this point isn't to cut expenses. The goal is to, I would say, maintain the same level of operating expenses that we had or close to the same level of operating expenses that we had in fiscal 2025. I mean, you recall all through, you know, the end of 2024 and through 2025, we talked about the increased investments that we've made in the oil and gas group and a couple other areas inside of the company and with the ability to kind of, you know, use those investments to drive revenues going forward. We didn't see the revenue increases in fiscal 2025. The expectations are the investments that we made in 2024 and 2025.

We'll start seeing, you know, the results of that in 2026 and beyond as those investments, specifically the people that we hired, you know, are able to gain traction and drive revenue growth. The expectation is that we're going to drive revenue growth in 2026, those gross margin dollars falling down to the operating profit line as we're able to hold operating expenses as stable as possible.

Timothy Clarkson (Stock Broker)

Sure. Okay. On oil and gas, it sounds like there is some additional business that will kick into the first quarter and further on out with some of these larger orders. Now, what is driving this business? Is it just having more salesmen out in the field in places like the Middle East and Brazil, or is it, you know, is the technology finally getting to be accepted as, you know, superior to the legacy technology of the cathodic arc stuff?

Patrick Lynch (CEO)

Yeah. Can you hear me?

Timothy Clarkson (Stock Broker)

Yeah, I can hear you. Go ahead.

Patrick Lynch (CEO)

Right. Tim. It's a common variation of it. It doesn't have anything to do with people out there. It's just general acceptance of the technology in the market where we've proven that it works over and over and over again. We're getting repeat business from existing customers as we're pulling in new customers. That's really starting to give our oil and gas business the attention that we think it deserves.

Timothy Clarkson (Stock Broker)

Sure. In terms of the packaging, I know that you guys had a breakthrough in terms of, you know, being able to kind of, you know, replace the traditional Saran Wrap packaging that does not allow air to go out, and you have now developed packaging that is similar to that that is compostable. I mean, how close are we from getting some business from that?

Patrick Lynch (CEO)

For that, I'd like to turn the question over to Vinny Dalao, who runs our Natur-Tec business. You want to go ahead.

Vinny Dalao (Natur-Tec Executive)

Yeah, this is Vinny. Yeah, we have several customers where we're doing trials with compostable packaging, especially for consumer food applications. This is something that we're working on. We've gotten some good feedback, not just here in North America, but also in India, where there's a big market for these kinds of applications. We expect some of those opportunities to start hitting our sales in 2026.

Timothy Clarkson (Stock Broker)

Okay. Are the costs similar for the compostable product versus the legacy product?

Vinny Dalao (Natur-Tec Executive)

No, the cost is definitely higher as the premium solution, but due to legislations and government regulations in countries like India, these companies are forced to use compostable packaging instead of traditional plastic packaging.

Timothy Clarkson (Stock Broker)

Okay. Okay. Great. I'm looking forward to seeing some of those results. I'm done. Thanks, guys.

Vinny Dalao (Natur-Tec Executive)

Thanks, guys.

Patrick Lynch (CEO)

Thanks.

Operator (participant)

Thank you. Our next question coming from the line of Gus Richard with Northern Capital Markets, your line is now open.

Gus Richard (Managing Director and Senior Research Analyst)

Yes, thanks for taking the questions. You mentioned weakness in North America. Could you just describe where that's coming from?

Matthew Wolsfeld (CFO)

The main weaknesses in North America we experienced throughout, you know, the entire fiscal 2025 was primarily the Natur-Tec group and the oil and gas group. If you look at the, you know, the oil and gas group in North America was down close to 46% on the year. Natur-Tec North America was down about 13% on the year.

Gus Richard (Managing Director and Senior Research Analyst)

Got it. Okay. In the floating platforms for the oil and gas, I'm trying to wrap my mind around how your solution would work floating on the water and how much does that open up the market opportunity for you?

Patrick Lynch (CEO)

It's a new market for us overall. It's not like you're trying to pack it, put the entire rig into a package, but you're taking sections of it and finding unique ways to apply our technology in those sections to provide long-term corrosion protection. Based on what we've seen in practice in Brazil so far, we think this is an opportunity that can be very good for us in Brazil, but in other areas around the world where they use offshore platforms.

Matthew Wolsfeld (CFO)

The only thing I'll add, Gus, is that the work that we talked about in Brazil, specifically on these FPSOs, there's a service component to it where there are actual Zerust Oil and Gas employees that are living on the offshore, essentially the offshore floating platforms and applying the Zerust solution to the infrastructure. They are on the rig for a period of time, and then they leave, and then replacements come in. It has been a long process in order to be able to get slots where our specific workers can be on those platforms to do the installation work. That is kind of a different sales process than we typically see with onshore where we're typically selling the solution and it's getting installed and then, you know, you don't need to continually apply and continually upkeep it.

Gus Richard (Managing Director and Senior Research Analyst)

Okay. And just out of curiosity, does that having to have folks on the rigs, you know, and continually reapplying, does that have an impact on the margin profile for the floating platforms?

Matthew Wolsfeld (CFO)

Yeah. I mean, it's a slightly decreased margin given the service component and things like that compared to just selling any of the other Zerust Oil and Gas solutions where you're just selling the actual product and somebody else is doing the installation work.

Gus Richard (Managing Director and Senior Research Analyst)

Got it. Thanks. That's super helpful. The one-time adjustment, the Chinese tariff custom, whatever the heck that charge was, was that a one-time event and non-reoccurring, or is there an impact to the P&L going forward?

Vinny Dalao (Natur-Tec Executive)

No. Vinny, you want to address that? Yeah. It was a one-time event. I mean, essentially we produce some compounds in China that are filled compounds. They contain minerals and then we export out of China. When you export it, I mean, we've always followed international norms for HTS codes that we use, you know, here in the U.S., in India, in Europe. Essentially, when we export it out of China, we get a VAT credit. Now, because of the trade war between the U.S. and China and Chinese customs cracking down on any exports that contain minerals or rare earths, there is a customs official who basically said that because your compounds contain these minerals, you're not eligible for the VAT refund. That basically accounted for, you know, we had to repay back all the credit or the rebate that we got.

We expect this to be a one-time event moving forward. You know, that will be part of our, you know, cost of goods sold.

Matthew Wolsfeld (CFO)

Essentially, it was a couple of years' worth of VAT that the Chinese government clawed back as well as a penalty on top of that for using what they deemed to be the wrong code for the VAT. The expectations are, it's a one-time charge that we took and decided, you know, we weren't going to challenge the Chinese government and this we wanted to move forward as quickly as possible with the, you know, with the process so we can continue the, you know, the import and export of the product.

Gus Richard (Managing Director and Senior Research Analyst)

Got it. And then on the food packaging application, you know, is this going to be, you know, like packaging in, I do not know, you know, like a vegetable produce supplier or is this something applied in a supermarket over, you know, chicken breasts or whatever? Sort of go ahead.

Vinny Dalao (Natur-Tec Executive)

Yeah. We're looking at multiple applications. One of the applications that we're looking at in India is packaging of milk. These are milk pouches where we're working with some of the largest dairies in India to change over from conventional polyethylene packaging to a fully compostable solution. We've run trials. We had to engineer the product so that it met the barrier performance, the shelf life performance, the handling, and then even on their form fill machines, the throughput with our solution was equivalent to the throughput with existing plastic technology. We have proven all that and we expect that to be a growth business, at least in India.

In the U.S., we are working with consumer foods companies where they're looking to, we're looking at multi-layer structures, which would be used for, you know, things like sauces and salad dressings and those kinds of food items.

Gus Richard (Managing Director and Senior Research Analyst)

Oh, okay. So replacement for a Tetra Pak? Am I getting that right?

Vinny Dalao (Natur-Tec Executive)

Yeah. Or pouches, you know, like these little pouches for, you know, salad dressings or short shelf life, you know, sauces.

Gus Richard (Managing Director and Senior Research Analyst)

Got it. Like the pouches you would get in a restaurant for salad?

Vinny Dalao (Natur-Tec Executive)

Exactly. Yeah. Yeah. In a restaurant or a QSR. This one, you know, the project that we're working on in the U.S., that's essentially for a QSR segment.

Gus Richard (Managing Director and Senior Research Analyst)

Got it. When do you expect that to sort of add to Natur-Tec revenue? Is that, you know, revenue second half of fiscal 2026? You know, is it starting today? You know, can you give a little bit of color as to when you expect that to contribute to revenue?

Vinny Dalao (Natur-Tec Executive)

The application in the U.S. that requires some, you know, I would say fine-tuning. We are working closely with the customer on trials and prototype validation. That will probably take several quarters at least before we can introduce that in the market. The application in India, we have already gotten an initial PO from one of the dairy companies. We expect that business to kind of grow probably, you know, by Q2, Q3 of fiscal 2026.

Gus Richard (Managing Director and Senior Research Analyst)

Got it. That's it for me. Thanks so much.

Operator (participant)

Thank you. I am sure there are no further questions in the queue at this time. I will now turn the call back over to Mr. Patrick Lynch for any closing remarks. One just queued up. Coming from the line of Zach Liggett, Desmond Liggett Wealth Advisors, your line is now open.

Zach Liggett (Co-Founder)

Hey, good morning, guys. Thanks for taking the question. You know, on your presentations here over the last, I think, couple of years, you've had a strategic objective of hitting greater than 15% top line growth and, you know, slower expense growth. I'm just curious, I know the last couple of years have been sort of, you know, investment years for you, but how are you thinking about those objectives looking forward?

Patrick Lynch (CEO)

Matt, I think you're better qualified to handle this one.

Matthew Wolsfeld (CFO)

I guess from a top line growth standpoint, we are still, certainly still optimistic. We look at the opportunities that we have in, specifically in oil and gas, specifically in Natur-Tec. You know, the expectations are that those two groups are going to have some significant growth in 2026. The traditional Zerust business is going to be relatively stable with some slight growth. Certainly the opportunities that we have in Natur-Tec and oil and gas kind of worldwide are what we expect to kind of fuel that 15% growth this year. Certainly we did not get that last year, but we think the investments that we have made should put us back to that kind of growth rate, which would obviously have a, you know, significant impact from a gross margin standpoint. Again, with the dollar values flowing down to the, you know, to their earning EPS level.

Zach Liggett (Co-Founder)

Yeah. Okay. And then, you know, the operating cash flow came off quite a bit this year. How are you thinking about that for FY2026 and pre-cash flow for that matter? If you could give us an update on your CapEx expectations.

Matthew Wolsfeld (CFO)

Our fiscal 2025 was a large year. Really, 2024 and 2025 were a large year from a CapEx standpoint. We had a new ERP, new SAP ERP system that was implemented, which certainly was not cheap. We funded that out of operating cash. We also purchased a building that is directly, you know, adjacent to our existing headquarters here for the increased production and warehousing that we need, given that we are kind of outgrowing the current footprint that we have here. We were able to add another 60-70% to our office, you know, to our, you know, to our space here. The expectations are for 2026 that there is going to be very little capital improvements that are needed in North America.

There are additional facilities we're looking at in Brazil, which they would fund, you know, on their own, which would not involve, you know, operating cash coming out of North America. They have a cash surplus in Brazil. Also at Natur-Tec India, they're looking at essentially building their facility there to accommodate the production and warehousing needs for the Indian business. Again, they would be funding that and taking care of that entirely within their operating cash and any kind of financing in India. The expectations are, specifically in North America in 2026, that we're going to be able to add a significant amount of cash to pay down our line of credit.

You know, the goal is certainly to pay down the line of credit as much as possible, get back to the point that as we're seeing increased earnings, we're able to ramp the dividend back up and have a nice cash cushion to be able to kind of fund future growth, you know, and needs that the company has over the next few years.

Zach Liggett (Co-Founder)

All right. Yeah, that sounds promising then. Last, or two small ones for me, I guess. Any benefits you're seeing this coming year from the one big beautiful bill?

Matthew Wolsfeld (CFO)

Not really. I mean.

Patrick Lynch (CEO)

No, not to our business.

Zach Liggett (Co-Founder)

Okay. And then any AI use cases that you guys have identified for the coming year?

Patrick Lynch (CEO)

No.

Zach Liggett (Co-Founder)

All right. Thanks for taking the questions. Good luck.

Operator (participant)

Thank you. I'll now turn it back to Mr. Patrick Lynch.

Patrick Lynch (CEO)

All right. Thank you all for joining this morning. I hope you have a nice day.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.