Northern Technologies International Corporation (NASDAQ:NTIC), a
leading developer of corrosion inhibiting products and services, as
well as bio-based and biodegradable polymer resin compounds, today
reported its financial results for the first quarter of fiscal
2017.
First quarter fiscal 2017 financial and operating highlights
include (with growth rates compared to first quarter of fiscal
2016):
- Consolidated net sales increased 38.1% to a quarterly record
$9,702,000
- ZERUST® product net sales increased 35.2% to $8,085,000
- Natur-Tec® product net sales increased 54.5% to $1,617,000
- Total net sales from NTIC to its joint ventures increased 35.4%
to $702,000
- Joint venture operating income increased 4.9% to
$2,590,000
- Net income attributable to NTIC was $298,000, or $0.07 per
diluted share
“I’m pleased that our initial financial and operating results
for fiscal 2017 are in line with our expectations,” said G. Patrick
Lynch, President and Chief Executive Officer of NTIC. “Our Zerust
and Natur-Tec businesses experienced strong, double-digit
growth. Furthermore, sales across our joint venture network
increased nearly 11%, improving joint venture operating income by
nearly 5% for the quarter. Sales in China increased 128% to
$1,547,000, compared to the prior year period. We have
created a strong organization in China that we believe is well
positioned to gain market share. As a result, we expect our
Chinese subsidiary will continue to achieve year-over-year
improvements in sales and gross margins throughout fiscal
2017. Sales within our Natur-Tec business are also expanding,
and the fiscal 2017 first quarter was the strongest quarter of
Natur-Tec growth we have achieved as sales were up 55% to
$1,617,000. Natur-Tec is bordering on breakeven, and may
reach profitability in fiscal 2017, as a result of a strong
installed base of customers and an increased pipeline of potential
opportunities. Finally, our oil and gas business demonstrated
strong growth in the quarter, primarily due to a customer delay
that shifted the shipment of approximately $400,000 in tank bottom
corrosion products from the fourth quarter of fiscal 2016 to the
first quarter of fiscal 2017. We have created cost-effective
and compelling corrosion prevention solutions for the oil and gas
industry, but volatility in oil prices and changes in personnel at
many customers and partners have delayed our near-term growth in
this market. As prices rebound and volatility declines, we
remain optimistic about our long-term potential in the oil and gas
market.”
NTIC’s consolidated net sales increased 38.1% to $9,702,000
during the three months ended November 30, 2016, compared to
$7,024,000 for the three months ended November 30, 2015.
Consolidated net sales across all business segments were up for the
first quarter driven primarily through increased demand of ZERUST®
industrial rust and corrosion inhibiting products and higher
Natur-Tec® product sales.
The following table sets forth NTIC’s net sales by product
category for the three months ended November 30, 2016 and 2015 by
segment:
|
Three Months Ended |
|
November 30, 2016 |
|
% of Net Sales |
|
November 30 2015 |
|
% of Net Sales |
|
% Change |
ZERUST® industrial net
sales |
$ |
6,636,548 |
|
68.4 |
% |
|
$ |
5,119,093 |
|
72.9 |
% |
|
29.6 |
% |
ZERUST® joint venture
net sales |
|
701,799 |
|
7.2 |
% |
|
|
518,350 |
|
7.4 |
% |
|
35.4 |
% |
ZERUST® oil & gas
net sales |
|
746,331 |
|
7.7 |
% |
|
|
340,239 |
|
4.8 |
% |
|
119.4 |
% |
Total
ZERUST® net sales |
$ |
8,084,678 |
|
83.3 |
% |
|
$ |
5,977,682 |
|
85.1 |
% |
|
35.2 |
% |
Total Natur-Tec®
sales |
|
1,617,345 |
|
16.7 |
% |
|
|
1,046,755 |
|
14.9 |
% |
|
54.5 |
% |
Total net
sales |
$ |
9,702,023 |
|
100.0 |
% |
|
$ |
7,024,437 |
|
100.0 |
% |
|
38.1 |
% |
NTIC’s joint venture operating income increased 4.9% to
$2,590,000 during the three months ended November 30, 2016,
compared to joint venture operating income of $2,469,000 during the
three months ended November 30, 2015. The increase was
attributable to the corresponding increase in total sales of the
joint ventures as fees for services provided to joint ventures are
a function of the net sales of NTIC’s joint ventures, which were
$24,200,000 during the three months ended November 30, 2016,
compared to $21,871,000 for the three months ended November 30,
2015.
Operating expenses, as a percent of net sales, for the first
quarter of fiscal 2017 were 53.1%, compared to 67.0% for the same
period last fiscal year, primarily a result of a 120-basis point
improvement in first quarter gross margins, operating leverage on
increased net sales, and lower expenses incurred in support of
joint ventures, partially offset by higher selling, general and
administrative expenses associated with increased legal expenses in
North America and higher operating expenses in China.
The company reported net income attributable to NTIC for the
first quarter of fiscal 2017 of $298,000, or $0.07 per diluted
share, compared to a net loss attributable to NTIC of $(234,000),
or $(0.05) per share for the same period of last fiscal
year.
NTIC’s balance sheet remains strong, with no debt, and working
capital of $15,884,000 at November 30, 2016, including $2,529,000
in cash and cash equivalents and $1,746,000 in available for sale
securities, compared to $16,948,000 at August 31, 2016, including
$3,395,000 in cash and cash equivalents and $2,244,000 in available
for sale securities.
At November 30, 2016, the company had $20,052,000 of investments
in joint ventures, of which over $12,500,000 or 62.5% is cash, with
the remaining balance mostly made up of other working
capital.
Mr. Lynch added, “We expect fiscal 2017 second quarter results
to be better than last year’s. However, it’s important to note that
our second quarter is typically our weakest from a sales
perspective. This is primarily due to the long Chinese New
Year period, the North American holiday season and, overall, less
corrosion taking place at lower winter temperatures
worldwide. Our litigation against Cortec Corporation
continues, and a trial date is set for late July 2017. We
remain focused on the execution of our business plan, and expect
trends will continue to improve throughout the rest of the fiscal
year.”
Outlook
For the fiscal year ending August 31, 2017, NTIC continues to
expect its net sales to be in the range of between $37.5 million
and $39.0 million. The company also anticipates net income
attributable to NTIC to be in the range of between $3.4 million to
$3.9 million, or between $0.75 and $0.85 per diluted share.
These estimates are subject to significant risks and
uncertainties, including without limitation to risks and
uncertainties relating to NTIC’s Chinese operations, its ongoing
litigation against its former Chinese joint venture partner, its
ongoing litigation against Cortec Corporation, and other risks and
uncertainties.
Conference Call and Webcast
NTIC will host a conference call today at 8:00 a.m. Central Time
to review its results of operations for the first quarter of 2017
and its future outlook, followed by a question and answer
session. The conference call will be available to interested
parties through a live audio webcast available through NTIC’s
website at www.ntic.com or
http://ir.ntic.com/events.cfm where the webcast will be
archived and accessible for at least 12 months. The dial-in
number for the conference call is (877) 670-9779 and the
confirmation code is 46352002.
About Northern Technologies International
Corporation
Northern Technologies International Corporation develops and
markets proprietary environmentally beneficial products and
services in over 60 countries either directly or via a network of
subsidiaries, joint ventures, independent distributors and
agents. NTIC’s primary business is corrosion prevention
marketed primarily under the ZERUST® brand. NTIC has been selling
its proprietary ZERUST® rust and corrosion inhibiting products and
services to the automotive, electronics, electrical, mechanical,
military and retail consumer markets, for over 40 years, and in
recent years has targeted and expanded into the oil and gas
industry. NTIC offers worldwide on-site technical consulting for
rust and corrosion prevention issues. NTIC’s technical
service consultants work directly with the end users of NTIC’s
products to analyze their specific needs and develop systems to
meet their technical requirements. NTIC also markets and sells a
portfolio of bio-based and biodegradable polymer resins and
finished products marketed under the Natur-Tec®
brand.
Forward-Looking Statements
Statements contained in this press release that are not
historical information are forward-looking statements as defined
within the Private Securities Litigation Reform Act of 1995. Such
statements include NTIC’s expectations regarding its financial
guidance for fiscal 2017, the market potential and growth of its
ZERUST®, oil and gas and Natur-Tec® businesses, the market
potential, anticipated growth of its business in China and
anticipated improved operating results in China, anticipated
profitability of NTIC’s Natur-Tec® business, long-term potential of
NTIC’s oil and gas business, and other statements that can be
identified by words such as “believes,” “continues,” “expects,”
“anticipates,” “intends,” “potential,” “outlook,” “will,” “may,”
“would,” “should,” “guidance” or words of similar meaning, the use
of future dates and any other statements that are not historical
facts. Such forward-looking statements are based upon the current
beliefs and expectations of NTIC’s management and are inherently
subject to risks and uncertainties that could cause actual results
to differ materially from those projected or implied. Such
potential risks and uncertainties include, but are not limited to,
in no particular order: the effect on NTIC’s business and
operating results of the termination of NTIC’s joint venture
relationship in China and sale of products and services in China
through NTIC China; the ability of NTIC China to achieve
significant sales; costs and expenses incurred by NTIC in
connection with its ongoing litigation against its former Chinese
joint venture partner and Cortec Corporation; NTIC’s dependence on
the success of its joint ventures and fees and dividend
distributions that NTIC receives from them; NTIC’s relationships
with its joint ventures and its ability to maintain those
relationships; NTIC’s dependence on its joint venture in Germany in
particular due to its significance and the effect of a termination
of this or NTIC’s other joint ventures on NTIC’s business and
operating results; risks related to the impending exit of the
United Kingdom from the European Union and the European sovereign
debt crisis, economic slowdown and political unrest; risks
associated with NTIC’s international operations; exposure to
fluctuations in foreign currency exchange rates, including in
particular the Euro compared to the U.S. dollar; the health of the
U.S. and worldwide economies, including in particular the U.S.
automotive industry; the level of growth in NTIC’s markets; NTIC’s
investments in research and development efforts; acceptance of
existing and new products; timing of NTIC’s receipt of purchase
orders under supply contracts; variability in sales to customers in
the oil and gas industry and the effect on NTIC’s quarterly
financial results; increased competition; the costs and effects of
complying with changes in tax, fiscal, government and other
regulatory policies, including rules relating to environmental,
health and safety matters; pending and potential litigation; and
NTIC’s reliance on its intellectual property rights and the absence
of infringement of the intellectual property rights of others. More
detailed information on these and additional factors which could
affect NTIC’s operating and financial results is described in the
company’s filings with the Securities and Exchange Commission,
including its most recent annual report on Form 10-K for the fiscal
year ended August 31, 2016 filed by NTIC with the SEC on November
22, 2016. NTIC urges all interested parties to read these reports
to gain a better understanding of the many business and other risks
that the company faces. Additionally, NTIC undertakes no obligation
to publicly release the results of any revisions to these
forward-looking statements, which may be made to reflect events or
circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events.
NORTHERN TECHNOLOGIES INTERNATIONAL
CORPORATION AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS AS OF NOVEMBER
30, 2016 (UNAUDITED) |
AND AUGUST 31, 2016 (AUDITED) |
|
|
|
|
November 30, 2016 |
|
August 31, 2016 |
ASSETS |
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
2,529,140 |
|
|
$ |
3,395,274 |
|
|
Available
for sale securities |
|
|
1,745,968 |
|
|
|
2,243,864 |
|
|
Receivables: |
|
|
|
|
|
Trade
excluding joint ventures, less allowance for doubtful accounts |
|
|
|
|
|
of
$40,000 at November 30, 2016 and August 31, 2016 |
|
|
5,454,741 |
|
|
|
4,755,320 |
|
|
Trade
joint ventures |
|
|
700,518 |
|
|
|
791,903 |
|
|
Fees for
services provided to joint ventures |
|
|
1,422,105 |
|
|
|
1,406,587 |
|
|
Income
taxes |
|
|
120,539 |
|
|
|
215,905 |
|
|
Inventories |
|
|
7,388,095 |
|
|
|
7,711,287 |
|
|
Prepaid
expenses |
|
|
640,699 |
|
|
|
422,031 |
|
|
Total
current assets |
|
|
20,001,805 |
|
|
|
20,942,171 |
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET |
|
|
7,183,663 |
|
|
|
7,275,872 |
|
|
|
|
|
|
|
OTHER ASSETS: |
|
|
|
|
|
Investments in joint ventures |
|
|
20,052,432 |
|
|
|
19,840,774 |
|
|
Deferred
income taxes |
|
|
1,614,229 |
|
|
|
1,639,762 |
|
|
Patents
and trademarks, net |
|
|
1,307,040 |
|
|
|
1,278,597 |
|
|
Other |
|
|
49,831 |
|
|
|
92,874 |
|
|
Total
other assets |
|
|
23,023,532 |
|
|
|
22,852,007 |
|
|
Total
assets |
|
$ |
50,209,000 |
|
|
$ |
51,070,050 |
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
Accounts
payable |
|
$ |
2,959,284 |
|
|
$ |
2,753,903 |
|
|
Accrued
liabilities: |
|
|
|
|
|
Payroll
and related benefits |
|
|
637,106 |
|
|
|
938,363 |
|
|
Other |
|
|
521,623 |
|
|
|
301,836 |
|
|
Total
current liabilities |
|
|
4,118,013 |
|
|
|
3,994,102 |
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
EQUITY: |
|
|
|
|
|
Preferred
stock, no par value; authorized 10,000 shares; none issued and
outstanding |
|
|
— |
|
|
|
— |
|
|
Common
stock, $0.02 par value per share; authorized 10,000,000 |
|
|
|
|
|
shares;
issued and outstanding 4,530,870 and 4,533,416, respectively |
|
|
90,617 |
|
|
|
90,668 |
|
|
Additional paid-in capital |
|
|
13,857,777 |
|
|
|
13,798,567 |
|
|
Retained
earnings |
|
|
33,952,995 |
|
|
|
33,655,357 |
|
|
Accumulated other comprehensive loss |
|
|
(4,211,747 |
) |
|
|
(3,009,617 |
) |
|
Stockholders’ equity |
|
|
43,689,642 |
|
|
|
44,534,975 |
|
|
Non-controlling interest |
|
|
2,401,345 |
|
|
|
2,540,973 |
|
|
Total
equity |
|
|
46,090,987 |
|
|
|
47,075,948 |
|
|
Total
liabilities and equity |
|
$ |
50,209,000 |
|
|
$ |
51,070,050 |
|
|
|
|
|
|
|
|
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND
SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) |
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2016
AND 2015 |
|
|
Three Months Ended |
|
November 30, 2016 |
|
November 30, 2015 |
NET
SALES: |
|
|
|
Net
sales, excluding joint ventures |
$ |
9,000,224 |
|
|
$ |
6,501,410 |
|
Net
sales, to joint ventures |
|
701,799 |
|
|
|
523,027 |
|
Total net
sales |
|
9,702,023 |
|
|
|
7,024,437 |
|
|
|
|
|
Cost of
goods sold |
|
6,612,766 |
|
|
|
4,875,423 |
|
Gross profit |
|
3,089,257 |
|
|
|
2,149,014 |
|
|
|
|
|
JOINT
VENTURE OPERATIONS: |
|
|
|
Equity in
income of joint ventures |
|
1,274,004 |
|
|
|
983,753 |
|
Fees for
services provided to joint ventures |
|
1,315,591 |
|
|
|
1,485,429 |
|
Total
joint venture operations |
|
2,589,595 |
|
|
|
2,469,182 |
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
Selling
expenses |
|
2,039,084 |
|
|
|
1,525,083 |
|
General
and administrative expenses |
|
2,471,780 |
|
|
|
2,174,607 |
|
Research
and development expenses |
|
642,522 |
|
|
|
1,004,097 |
|
Total
operating expenses |
|
5,153,386 |
|
|
|
4,703,787 |
|
|
|
|
|
OPERATING INCOME
(LOSS) |
|
525,466 |
|
|
|
(85,591 |
) |
|
|
|
|
INTEREST INCOME |
|
3,563 |
|
|
|
14,173 |
|
INTEREST EXPENSE |
|
(4,623 |
) |
|
|
(4,726 |
) |
|
|
|
|
INCOME (LOSS) BEFORE
INCOME TAX EXPENSE |
|
524,406 |
|
|
|
(76,144 |
) |
|
|
|
|
INCOME TAX EXPENSE
(BENEFIT) |
|
117,713 |
|
|
|
(3,502 |
) |
|
|
|
|
NET INCOME (LOSS) |
|
406,693 |
|
|
|
(72,642 |
) |
|
|
|
|
NET INCOME ATTRIBUTABLE
TO NON-CONTROLLING INTERESTS |
|
109,054 |
|
|
|
161,709 |
|
|
|
|
|
NET INCOME (LOSS)
ATTRIBUTABLE TO NTIC |
$ |
297,639 |
|
|
$ |
(234,351 |
) |
|
|
|
|
NET INCOME (LOSS)
ATTRIBUTABLE TO NTIC PER COMMON SHARE: |
|
|
|
Basic |
$ |
0.07 |
|
|
$ |
(0.05 |
) |
Diluted |
$ |
0.07 |
|
|
$ |
(0.05 |
) |
|
|
|
|
WEIGHTED AVERAGE COMMON
SHARES ASSUMED OUTSTANDING: |
|
|
|
Basic |
|
4,531,950 |
|
|
|
4,538,371 |
|
Diluted |
|
4,558,878 |
|
|
|
4,538,371 |
|
Investor and Media Contacts:
Matthew Wolsfeld, CFO
NTIC
(763) 225-6600
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