NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION REPORTS FINANCIAL RESULTS FOR SECOND QUARTER FISCAL 2020

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION REPORTS FINANCIAL RESULTS FOR SECOND QUARTER FISCAL 2020

April 7, 2020 at 8:00 AM EDT

MINNEAPOLIS, April 07, 2020 (GLOBE NEWSWIRE) -- 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 second quarter of fiscal 2020. 

Second quarter fiscal 2020 highlights include (with growth rates compared to second quarter fiscal 2019):  

  • Consolidated net sales decreased 0.6% to $13,234,000
  • ZERUST® industrial product net sales decreased 1.0% to $9,016,000
  • ZERUST® oil and gas net sales increased 198.6% to $1,067,000
  • NTIC China product net sales increased 0.6% to $3,024,000
  • Natur-Tec® product net sales increased 0.3% to $4,218,000
  • Joint venture operating income decreased 17.0% to $2,617,000
  • Net income attributable to NTIC decreased 87.2% to $180,000
  • Net income per diluted share attributable to NTIC decreased 86.7% to $0.02
  • Cash provided by operating activities increased $5,775,000 over the past three months to $4,208,000
  • Consolidated balance sheet at February 29, 2020 was strong with no debt, total cash and cash equivalents of $5,626,000 and available for sale securities of $6,512,000

“As the COVID-19 pandemic began impacting global supply chains this past February, demand for ZERUST® industrial products slowed substantially in North America, as well as at NTIC China.  Sales across our joint venture network also weakened, causing a 12.5% decline in joint venture sales for second quarter, along with a 17.0% decrease in joint venture operating income compared to the prior fiscal year second quarter.  Demand for Natur-Tec’s compostable bioplastics, however, remained comparable to the prior fiscal year quarter.  ZERUST® oil and gas sales increased significantly during the second quarter, as the result of several customers having delayed product shipments from our first quarter.” said G. Patrick Lynch, President and Chief Executive Officer of NTIC. “Aside from this, NTIC currently continues to receive and deliver customer orders, even with almost all of our employees currently working from home, since we’re considered to be in the ‘Critical Sector’ with respect to state and local governmental ‘Stay at Home’ orders issued due to the ongoing COVID-19 pandemic.”

“With many of our global customers currently running at a fraction of their regular capacity or locked down altogether, we anticipate sales for our third quarter to be down significantly. Consequently, we are withdrawing and suspending specific full-year fiscal 2020 guidance at this time.”

“It is our intent to continue providing uninterrupted order fulfillment, while also safeguarding and supporting both our employees and our customers.  Overall, we are entering this period of uncertainty from a position of strength.  During the second quarter, we experienced a significant increase in cash provided by operating activities, primarily due to the timing of dividend payments from our joint ventures, which further bolstered our balance sheet.  We believe that our asset-light and highly profitable business model, combined with our experienced leadership team, and excellent capital structure will help NTIC successfully navigate the current crisis.  Additionally, NTIC is evaluating the availability of government support from the various stimulus packages that have been put in place in the past weeks,” concluded Mr. Lynch.  

NTIC’s consolidated net sales decreased 0.6% to $13,234,000 during the three months ended February 29, 2020, compared to $13,315,000 for the three months ended February 28, 2019.  This slight decrease was a result of lower ZERUST® industrial sales and ZERUST® sales to its joint ventures, partially offset by higher ZERUST® oil and gas sales and Natur-Tec® sales.  For the first half of fiscal 2020, consolidated net sales increased 1.7% to $27,865,000, compared to $27,410,000 for the same period last fiscal year. 

The following table sets forth NTIC’s net sales by product category for the three and six months ended February 29, 2020, and February 28, 2019, by segment:

  Three Months Ended
  February 29,
2020
  % of Net
Sales

  February 28,
2019
  % of Net
Sales

  %
Change
ZERUST® industrial net sales $ 7,703,575   58.2 %   $ 8,042,154   60.4 %   (4.2 )%
ZERUST® joint venture net sales   245,629   1.9 %     708,954   5.3 %   (65.4 )%
ZERUST® oil & gas net sales   1,067,018   8.0 %     357,287   2.7 %   198.6 %
Total ZERUST® net sales $ 9,016,222   68.1 %   $ 9,108,395   68.4 %   (1.0 )%
Total Natur-Tec® sales   4,217,561   31.9 %     4,207,009   31.6 %   0.3 %
Total net sales $ 13,233,783   100.0 %   $ 13,315,404   100.0 %   (0.6 %)


  Six Months Ended
  February 29,
2020
  % of Net
Sales

  February 28,
2019
  % of Net
Sales

  %
Change
ZERUST® industrial net sales $ 16,546,627   59.4 %   $ 16,637,968   60.7 %   (0.6 )%
ZERUST® joint venture net sales   831,245   3.0 %     1,192,141   4.4 %   (30.3 )%
ZERUST® oil & gas net sales   1,587,862   5.7 %     1,343,460   4.9 %   18.2 %
Total ZERUST® net sales $ 18,965,734   68.1 %   $ 19,173,569   70.0 %   (1.1 )%
Total Natur-Tec® sales   8,899,449   31.9 %     8,235,887   30.0 %   8.1 %
Total net sales $ 27,865,183   100.0 %   $ 27,409,546   100.0 %   1.7 %

NTIC’s joint venture operating income was $2,617,000 during the three months ended February 29, 2020, compared to joint venture operating income of $3,152,000 during the three months ended February 28, 2019.  This $535,000 decrease was attributable to a decline in total net sales of the joint ventures as fees for services provided to joint ventures are primarily a function of the net sales of NTIC’s joint ventures, which were $24,289,000 during the three months ended February 29, 2020, compared to $27,750,000 for the three months ended February 28, 2019.  Year-to-date, NTIC’s joint venture operating income was $5,269,000, compared to joint venture operating income of $6,585,000 during the six months ended February 28, 2019.  Net sales of NTIC’s joint ventures were $49,750,000 during the six months ended February 29, 2020, compared to $58,230,000 for the six months ended February 28, 2019

Operating expenses, as a percent of net sales, for the second quarter of fiscal 2020 were 48.8%, compared to 40.5% for the same period last fiscal year.  This increase was primarily a result of higher general and administrative expenses.  Year-to-date, operating expenses, as a percent of net sales, were 44.4%, compared to 42.2% for the same period last fiscal year. 

Net income attributable to NTIC for the second quarter of fiscal 2020 decreased to $180,000, or $0.02 per diluted share, from $1,402,000, or $0.15 per diluted share, for the same period last fiscal year.  Net income attributable to NTIC for the first half of fiscal 2020 decreased to $1,392,000, or $0.15 per diluted share, from $2,898,000, or $0.31 per diluted share, for the same period last fiscal year. 

NTIC’s consolidated balance sheet remains strong, with no debt, and working capital of $29,431,000 at February 29, 2020, including $5,626,000 in cash and cash equivalents and $6,512,000 in available for sale securities, compared to $25,461,000 at August 31, 2019, including $5,857,000 in cash and cash equivalents and $3,565,000 in available for sale securities. 

At February 29, 2020, the company had $21,297,000 of investments in joint ventures, of which over $10,400,000, or 48.7%, was cash, with the remaining balance mostly made up of other working capital. 

Outlook

As a result of the evolving COVID-19 pandemic, NTIC does not have the ability to predict the level of impact on its business and financial results for the remainder of the fiscal year ending August 31, 2020 and therefore is withdrawing and suspending its full fiscal year sales, net income, and earnings per share guidance. 

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 second quarter of fiscal 2020 and its 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 https://ntic.gcs-web.com/events-presentations where the webcast will be archived and accessible for at least 12 months.  The dial-in number for the conference call is (877) 670-9776 and the confirmation code is 8668829.

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 release that are not historical information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include NTIC’s belief that third quarter sales will decrease due to the COVID-19 pandemic, NTIC’s ability to continue to provide uninterrupted order fulfillment, while also safeguarding and supporting both its employees and customers NTIC’s belief that it will successfully navigate the current crisis; 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 effects of the COVID-19 pandemic on NTIC’s business and operating results; the ability of NTIC to continue to pay dividends; the effect of economic uncertainty and trade disputes; 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 its other joint ventures on NTIC’s business and operating results; 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; the effect of the United Kingdom’s proposed exit from the European Union, economic slowdown and political unrest; risks associated with NTIC’s international operations; exposure to fluctuations in foreign currency exchange rates and tariffs, 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 the new tax reform law, which could result in a write-down of our deferred tax assets, and 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, 2019 and subsequent quarterly report on Form 10-Q. 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 FEBRUARY 29, 2020 (UNAUDITED) 
AND AUGUST 31, 2019 (AUDITED)

 
  February 29, 2020   August 31, 2019
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $ 5,626,410     $ 5,856,758  
Available for sale securities   6,512,166       3,565,258  
Receivables:      
Trade excluding joint ventures, less allowance for doubtful accounts      
of $65,000 at February 29, 2020 and August 31, 2019   9,810,545       9,779,518  
Trade joint ventures   539,175       824,473  
Fees for services provided to joint ventures   1,195,219       1,268,000  
Income taxes   56,819       457,018  
Inventories   11,424,384       10,488,728  
Prepaid expenses   949,893       1,062,609  
Total current assets   36,114,611       33,302,362  
       
PROPERTY AND EQUIPMENT, NET   7,227,524       7,358,159  
       
OTHER ASSETS:      
Investments in joint ventures   21,297,202       24,207,339  
Deferred income taxes   1,694,499       1,634,258  
Patents and trademarks, net   930,132       1,008,969  
Operating lease right of use asset   520,601        
Total other assets   24,442,434       26,850,566  
Total assets $ 67,784,569     $ 67,511,087  
       
LIABILITIES AND EQUITY      
CURRENT LIABILITIES:      
Accounts payable $ 4,373,988     $ 4,505,531  
Income taxes payable   3,169       6,759  
Accrued liabilities:      
Payroll and related benefits   1,259,122       1,857,971  
Other   835,823       1,471,532  
Current portion of operating lease   211,495        
Total current liabilities   6,683,597       7,841,793  
LONG-TERM LIABILITIES:      
Operating lease, less current portion   309,106        
Total long-term liabilities   309,106        
       
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 15,000,000 shares as of      
February 29, 2020 and August 31, 2019; issued and outstanding 9,097,236 and 9,086,816, respectively   181,945       181,736  
Additional paid-in capital   16,707,207       16,013,338  
Retained earnings   45,202,903       44,992,719  
Accumulated other comprehensive loss   (4,602,349 )     (4,593,178 )
Stockholders’ equity   57,489,706       56,594,615  
Non-controlling interests   3,302,160       3,074,679  
Total equity   60,791,866       59,669,294  
Total liabilities and equity $ 67,784,569     $ 67,511,087  

*Share and per share data have been adjusted for all periods presented to reflect the two-for-one stock split effective June 28, 2019.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2020 AND FEBRUARY 28, 2019

 
 
  Three Months Ended   Six Months Ended
  February 29, 2020   February 28, 2019   February 29, 2020   February 28, 2019
NET SALES:              
Net sales, excluding joint ventures $ 12,988,153     $ 12,606,449     $ 27,033,937     $ 26,217,314  
Net sales, to joint ventures   245,630       708,955       831,246       1,192,142  
Total net sales   13,233,783       13,315,404       27,865,183       27,409,456  
               
Cost of goods sold   8,687,301       9,284,099       18,492,385       18,745,236  
Gross profit   4,546,482       4,031,305       9,372,798       8,664,220  
               
JOINT VENTURE OPERATIONS:              
Equity in income from joint ventures   1,360,804       1,715,216       2,654,794       3,719,378  
Fees for services provided to joint ventures   1,256,213       1,436,774       2,614,538       2,865,209  
Total joint venture operations   2,617,017       3,151,990       5,269,332       6,584,587  
               
OPERATING EXPENSES:              
Selling expenses   3,110,240       2,505,081       5,997,532       5,316,175  
General and administrative expenses   2,345,113       1,963,537       4,394,800       4,459,334  
Research and development expenses   1,006,395       927,537       1,968,036       1,799,694  
Total operating expenses   6,461,748       5,396,155       12,360,368       11,575,203  
               
OPERATING INCOME   701,751       1,787,140       2,281,762       3,673,604  
               
INTEREST INCOME   55,042       15,122       104,080       27,909  
INTEREST EXPENSE   (9,377 )     (3,835 )     (14,821 )     (6,192 )
               
INCOME BEFORE INCOME TAX EXPENSE   747,416       1,798,427       2,371,021       3,695,321  
               
INCOME TAX EXPENSE   463,594       246,371       727,660       502,074  
               
NET INCOME   283,822       1,552,056       1,643,361       3,193,247  
               
NET INCOME ATTRIBUTABLE TO NON-                               
CONTROLLING INTERESTS   103,988       150,488       250,977       294,620  
               
NET INCOME ATTRIBUTABLE TO NTIC $ 179,834     $ 1,401,568     $ 1,392,384     $ 2,898,627  
               
NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:              
Basic $ 0.02     $ 0.16     $ 0.15     $ 0.32  
Diluted $ 0.02     $ 0.15     $ 0.15     $ 0.31  
               
WEIGHTED AVERAGE COMMON SHARES              
ASSUMED OUTSTANDING:              
Basic   9,097,236       9,084,354       9,095,604       9,084,350  
Diluted   9,461,727       9,447,860       9,383,867       9,463,216  
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.065     $ 0.06     $ 0.13     $ 0.12  

*Share and per share data have been adjusted for all periods presented to reflect the two-for-one stock split effective June 28, 2019.

Investor and Media Contacts:
Matthew Wolsfeld, CFO                                                       
NTIC                                                                          
(763) 225-6600  

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Source: Northern Technologies International Corporation