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NT

NORTHERN TECHNOLOGIES INTERNATIONAL CORP (NTIC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 revenue was $19.07M, down 8.5% YoY and down ~10.6% QoQ; GAAP diluted EPS was $0.04 and non-GAAP adjusted EPS was $(0.03) . Versus S&P Global consensus, revenue missed $20.20M* and EPS missed $0.06* (GAAP $0.04 vs $0.06; adjusted $(0.03) vs consensus primary EPS)*.
  • Gross margin contracted 440 bps YoY to 35.6% (from 40.0% prior year) driven by less profitable mix and Natur‑Tec pricing actions; sequentially down vs Q1’s 38.3% .
  • Management is prioritizing cash discipline: temporary dividend cut to $0.01 (from $0.07) and focus on debt reduction; ERC cash of $1.14M boosted GAAP other income this quarter .
  • Near-term outlook cautious (“flat” core business for the current quarter) with expected 2H rebound in Natur‑Tec and ZERUST oil & gas supported by pipeline and seasonal patterns .
  • Key catalysts: dividend reset (capital allocation signal), margin trajectory stabilization, 2H oil & gas ramp, and progress on API/NACE standards acceptance timing (late FY2025) .

What Went Well and What Went Wrong

What Went Well

  • NTIC China showed resilience: Q2 net sales +8.1% YoY to $3.7M; management noted limited tariff exposure and stabilization toward FY2021–22 levels . Quote: “NTIC China… increased by 8.1% to $3.7 million… sales in this geography continue to stabilize” — G. Patrick Lynch .
  • Operating cost control sequentially: Q2 OpEx down 6.9% QoQ, while YoY increase reflects strategic O&G investments; balance sheet liquidity remains solid ($5.1M cash, JV cash ~$13M) .
  • Strategic pipeline: management reiterated growing oil & gas pipeline across geographies and a new Natur‑Tec food packaging technology opportunity with positive trial results .

What Went Wrong

  • Top-line and EPS misses vs consensus: revenue $19.07M vs $20.20M*; GAAP diluted EPS $0.04 vs $0.06*, non‑GAAP adjusted EPS $(0.03)* . Natur‑Tec price reductions (4–8%) pressured gross margin; less profitable sales mix weighed as well .
  • ZERUST oil & gas sales fell 28.5% YoY to $1.55M on seasonality and prior-year timing benefit; JV sales/operating income also declined (JV net sales −15.7% YoY to $19.8M; JV OI −31.8% to $1.69M) .
  • Europe headwinds persisted (EXCOR Germany weakness tied to elevated energy costs and auto market pressure), dampening JV contributions .

Financial Results

Headline metrics vs prior periods and consensus

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD)$23,349,107 $21,338,393 $19,072,066
GAAP Diluted EPS ($)$0.19 $0.06 $0.04
Non-GAAP Diluted EPS ($)$0.20 $0.07 $(0.03)
Gross Margin (%)43.8% 38.3% 35.6%
Operating Income ($)$2,761,862 $1,106,671 $(332,933)
Operating Margin (%)11.8% 5.2% (1.7%)
JV Operating Income ($)$2,033,602 $2,413,712 $1,690,993
Cash Dividend Declared ($/sh)$0.07 $0.07 $0.07
S&P Global Revenue Consensus ($USD)$22,500,000*$21,000,000*$20,200,000*
S&P Global Primary EPS Consensus ($)$0.19*$0.12*$0.06*
Values retrieved from S&P Global.*

Segment/Product net sales

Segment Net Sales ($USD)Q4 2024Q1 2025Q2 2025
ZERUST Industrial$13,431,917 $13,962,252 $12,562,853
ZERUST Oil & Gas$4,199,583 $1,513,551 $1,549,164
Natur‑Tec$5,717,607 $5,862,590 $4,960,049
Total Net Sales$23,349,107 $21,338,393 $19,072,066

KPIs and operating drivers

KPIQ4 2024Q1 2025Q2 2025
NTIC China Net Sales ($USD)~$3.6M $3,995,000 $3,735,000
JV Net Sales ($USD)$23,297,000 $23,837,000 $19,800,000
Working Capital ($USD)$23,682,000 (Aug 31, 2024) $22,183,000 (Nov 30, 2024) $21,416,000 (Feb 28, 2025)
Cash & Equivalents ($USD)$4,952,184 (Aug 31, 2024) $5,569,834 (Nov 30, 2024) $5,090,630 (Feb 28, 2025)
ERC Other Income ($USD)——$1,139,756

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareNext quarterly payment (May 14, 2025)$0.07 declared in prior quarters $0.01 payable May 14, 2025 Lowered
Oil & Gas Sales Trajectory2H FY2025“Record Q4; expect nice growth in FY2025; seasonal/lumpy” “Poised for rebound in 2H; pipeline growing; seasonality persists” Maintained qualitative bullish 2H outlook
Capital AllocationFY2025“Debt reduction strategic focus” “Prioritizing debt reduction; disciplined cash; temp dividend adjustment” Reinforced
Standards/Regulatory (API/NACE)Late FY2025Ongoing processAPI change expected to take effect late FY2025; credibility of VCIs increasing Informational timing update
Note: No quantitative revenue/EPS/margin guidance was provided in Q2 materials; commentary remains qualitative .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Oil & Gas pipeline & seasonalityRecord Q4 O&G ($4.2M); expect 20–30% FY2025 growth; seasonal/lumpy Q2 O&G down YoY to $1.55M; pipeline growing; expect 2H rebound; hires across NA/Middle East/Asia/Europe Rebound expected in 2H; near-term softness
Natur‑Tec pricing/expansionStrong Q4/Q1 growth; distributors consolidating; resin demand in cutlery/apparel packaging Price reductions (4–8%) to stay competitive; new US distributor; food packaging tech trials promising Mixed: near-term margin pressure; medium-term growth opportunities
Supply chain/tariffs/macroEurope JV headwinds (energy, auto), North America stable U.S. tariff changes; limited China tariff exposure; macro uncertainty Macro risk elevated; China stabilizing
Regional trends (China/Europe/Brazil)China stabilizing; Europe JV declines; Brazil O&G growing China +8.1% YoY; Europe (Germany) weak; Brazil ramping O&G to Petrobras ecosystem China ↑; Europe ↓; Brazil ↑
Regulatory/legal (API/NACE)Pushing VCI acceptance; anticipated impact primarily U.S. API change expected late FY2025; credibility increasing Positive long-term
R&D/executionMargin improvement initiatives; capacity adds (MN, India, Brazil) Expansion of O&G sales infrastructure; some hires did not work out; continuing build-out Execution ongoing; some churn in hiring

Management Commentary

  • “NTIC’s second-quarter performance demonstrates the increasing intensity of the headwinds… recent changes in U.S. trade and economic policies, the seasonality of our industrial and oil and gas businesses, and the timing of certain Natur‑Tec orders.” — G. Patrick Lynch .
  • “Our disciplined approach to managing cash, including temporarily adjusting our quarterly dividend to $0.01 per share… and prioritizing debt reduction are intended to position us to seize future growth opportunities in our oil and gas and compostable plastics businesses.” — G. Patrick Lynch .
  • “Gross profit as a percentage of net sales was 35.6%… The 440 basis point decline was primarily a result of a less profitable mix of sales.” — Matt Wolsfeld .
  • “We have decreased our top line sales price… 4% to 6%, even up to 8% in some areas, to maintain competitive [pricing]… that’s been one of the impacts to gross margin [Natur‑Tec].” — Matt Wolsfeld .

Q&A Highlights

  • Oil & gas sales force build-out: ~8 hires, some attrition; impact expected to start in 2H FY2025; deployments across NA, Middle East, Asia, Europe .
  • Natur‑Tec pipeline: added a large U.S. distributor; new food packaging technology under trial with “significant opportunity” if successful .
  • Margin drivers: Natur‑Tec competitive price cuts (4–8%) pressured gross margin; ZERUST industrial margins steady; O&G margins flat but lower O&G sales mix weighed .
  • Macro/JV: EXCOR Germany challenged by high energy costs and auto market weakness; broader Europe mixed .
  • Brazil: O&G business “ramping very nicely” with Petrobras ecosystem opportunities .
  • Near-term tone: core business expected “flat” for the current quarter; ERC payment was actual cash .

Estimates Context

  • Q2 FY2025: Revenue $19.07M vs S&P Global consensus $20.20M*; GAAP diluted EPS $0.04 vs S&P Global primary EPS $0.06*; non-GAAP adjusted EPS $(0.03) vs S&P Global primary EPS actual $(0.03)* .
  • Q1 FY2025: Revenue $21.34M vs $21.00M*; GAAP diluted EPS $0.06 vs $0.12* .
  • Q4 FY2024: Revenue $23.35M vs $22.50M*; GAAP diluted EPS $0.19 vs $0.19* .
    Values retrieved from S&P Global.*

Where estimates may adjust: downward bias for near-term Natur‑Tec margin assumptions and O&G seasonality; potential upward revisions for 2H O&G if pipeline converts and Brazil accelerates .

Key Takeaways for Investors

  • Near-term caution: Q2 revenue/EPS miss, margin compression, and JV softness in Europe suggest subdued momentum into Q3; management guides “flat” near-term core demand .
  • Watch 2H catalysts: seasonal O&G ramp, broader pipeline conversion, and Brazil O&G wins could re-accelerate growth; API standard timing late FY2025 is a tailwind to credibility .
  • Natur‑Tec trade-off: price cuts preserved competitiveness but pressured margins; new distributor and food packaging technology pipeline provide medium-term growth optionality .
  • Capital allocation reset: dividend cut to $0.01 signals focus on deleveraging and flexibility; ERC provided one-time cash but should be stripped in non-GAAP assessments .
  • Regional mix matters: China stabilization supportive; continued Europe (Germany) headwinds weigh on JV income .
  • Operating discipline: sequential OpEx reduction and working capital management support debt reduction goals; monitor sustainability of cost controls into 2H .
  • Trading implications: near-term risk skewed to margin/estimate cuts; catalysts to flip sentiment include evidence of O&G backlog conversion and Natur‑Tec tech wins; dividend reset may deter income investors short term but improve strategic flexibility .