管理層發言
Good day, and welcome to NTIC Third Quarter 26 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Instructions will be given at that time. 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 2000 and that NTIC elects 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 call over to Mr. Patrick Lynch, NTIC's CEO. Please go ahead, sir.
Good morning. I am Patrick Lynch, NTIC's CEO, and I am here with Matthew Wolsfeld, NTIC's CFO. Please note that a press release regarding our third quarter fiscal 26 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 26 third quarter 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 third quarter of our fiscal 26 in comparison to the third quarter of last fiscal year. Strong global demand and increasing adoption of our ZERUST corrosion prevention and Natur-Tec bioplastic solutions drove quarterly consolidated sales to new record highs. Disruptions to shipping through the Strait of Hormuz during the quarter, caused by recent increased conflict levels in the Middle East, contributed to a significant increase in our raw material costs.
Higher input costs reduced our gross margin by approximately 477 basis points year over year, and we estimate that gross profit was negatively affected by approximately $1.0 million based on gross margin levels prior to the increase in hostilities. We believe that the third quarter cost pressure was temporary, and we are pursuing pricing and procurement initiatives that we expect will improve gross margin and profitability in the fourth quarter. Since reaching the profitability levels we plan for is taking longer than expected, we believe NTIC must remain focused on the initiatives within our control to drive more profitable growth, including expanding sales of our higher-margin ZERUST oil and gas solutions and broadening Natur-Tec applications globally. Our liquidity and financial flexibility remain solid, supported by significant capital within our joint venture network and anticipated proceeds of more than $1.0 million from the pending sale of our Beachwood, Ohio facility, which is expected to close in fiscal 27.
The resilience of our business model, continued demand for our technologies, and our focus on execution give us confidence in stronger, more profitable fourth quarter results. So with this overview, let's examine the drivers for the third quarter in more detail. For the third quarter ended May 31, 2026, our total consolidated net sales increased 12.6% to $24.2 million as compared to the third quarter ended May 31, 2025. Broken down by business unit, this included a 72.3% increase in ZERUST oil and gas net sales, a 10.3% increase in ZERUST industrial net sales, and a 5% increase in Natur-Tec sales. Turning to our joint venture sales, which we do not consolidate in our financial statements, total net sales for the fiscal 26 third quarter by our joint ventures increased year over year by 15.1% to $26.7 million, reflecting improved year-over-year demand across many of our joint ventures. We continue to closely monitor trends across our European markets for signs of stabilization following years of subdued demand as governments begin to implement targeted 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. Stable sales trends continued at our wholly-owned NTIC China subsidiary. Fiscal 26 third quarter net sales at NTIC China decreased by less than 1% to $4.5 million. As I have stated before, 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 26, helping to support higher incremental sales and profitability in the market. On a trailing 12-month basis, NTIC China sales have increased 12.8% to $17.8 million compared to $15.8 million for the same corresponding period last fiscal year. We believe that China will likely become a significant market for our industrial and bioplastic segments, so we will continue to take steps to enhance our operations in this geography.
Now moving on to ZERUST oil and gas. ZERUST oil and gas sales were $2.2 million, a third quarter record and increase of 72.3% from the same period last year. This growth reflects the investments we have made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry. The third quarter reflects the fourth consecutive quarter that ZERUST oil and gas sales have been over $2.0 million, and on a trailing 12-month basis, sales are now over $10.0 million for the first time in our history. We are encouraged by these trends as adoptions increase and we develop new applications for our corrosion prevention solutions across the global oil and gas market. During the third quarter, we experienced higher year-over-year oil and gas sales in the Middle East, North America, India, and China from both new and existing customers, reflecting the contribution of recent investments we have made to enhance our sales team and add resources to support future growth.
This has improved our sales pipeline as the number of opportunities has expanded. The 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 26 as we leverage these investments and rein in operating expense growth. Turning to our Natur-Tec bioplastics business, third quarter Natur-Tec sales were a quarterly record $6.1 million, representing a 5% year-over-year increase. We continue to pursue several larger opportunities in North America and India that we believe can further benefit Natur-Tec sales in the coming quarters. In North America, Natur-Tec was recently selected for the International Fresh Produce Association's packaging innovation program, where we are advancing commercialization of compostable barrier laminate solutions for food packaging applications.
In India, we announced a collaboration with Bayer to develop biodegradable and compostable seedling cups for nursery applications. This initiative is expected to begin with pilot trials in vegetable and fruit nurseries, and if successful in validation, create a meaningful new application for our compostable materials platform. These initiatives build on new food packaging opportunities we have discussed on prior calls and demonstrate the expanding range of markets in which Natur-Tec can provide a practical alternative to conventional plastics. Overall, we believe Natur-Tec is a best-in-class compostable plastics business that is well positioned for further growth in the U.S. and internationally, and we expect sales to continue to expand over time. Before I turn the call over to Matthew, I want 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 Matthew Wolsfeld to summarize our financial results for fiscal 26 third quarter.
Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales increased 12.6% in the fiscal 26 third quarter, the second consecutive quarter of year-over-year double-digit growth. Sales across our global joint ventures increased 15.1% in the third quarter. Joint venture operating income in the third quarter increased 12.2% compared to the prior fiscal year period, primarily due to higher sales at our joint ventures. Total operating expenses for the fiscal 26 third quarter increased 5.3% to $10.2 million, primarily due to higher year-over-year selling, general, and administrative, as well as research and development expenses. Operating expenses as a percentage of third quarter sales were 42.0% compared to 44.9% for the prior fiscal year period. We expect quarterly sales to grow faster than operating expenses as we continue to leverage recent investments and upgrades across our global operations.
Gross profit as a percentage of net sales was 33.6% during the three months ended May 31, 2026, compared to 38.4% during the prior fiscal year period. As Patrick discussed, gross margin for the third quarter was impacted primarily by higher raw material costs as a result of the conflict in the Middle East and disruption of shipping through the Strait of Hormuz. We expect gross margin to improve sequentially in the fourth quarter of fiscal 26. NTIC reported a net loss of $263 thousand, or $0.03 per share, for the fiscal 26 third quarter compared to net income of $122 thousand, or $0.01 per diluted share, for the fiscal 25 third quarter. For the fiscal 26 third quarter, NTIC's non-GAAP adjusted net loss was $158 thousand, or $0.02 per diluted share, compared to a non-GAAP adjusted net income of $228 thousand, or $0.02 per diluted share, for the fiscal 25 third quarter. A reconciliation of GAAP to non-GAAP financial measures is available in our third quarter fiscal 26 earnings press release that was issued this morning.
As of May 31, 2026, working capital was $20.0 million, including $7.3 million in cash and cash equivalents, compared to $20.4 million, including $7.3 million in cash and cash equivalents as of August 31, 2025. As of May 31, 2026, we had outstanding debt of $14.8 million. This included $11.8 million in borrowings under our existing revolving line of credit, compared to $9.3 million as of August 31, 2025. Reducing debt through positive operating cash flow and improving working capital efficiencies is a strategic near-term focus. During the third quarter of fiscal 26, we committed to a plan to sell our Beachwood, Ohio facility, which has historically been used for our ZERUST segment. As a result, we reclassified the carrying value of the property by $816 thousand from property, plant, and equipment to assets held for sale on the consolidated balance sheet as of May 31, 2026. On May 31, 2026, we received a non-binding letter of intent to purchase the property for $1.15 million in cash, subject to a customary due diligence period and execution of a definitive purchase and sale agreement.
We expect the sale of the property to close during fiscal 27. On May 31, 2026, the company had $30.4 million in investments and joint ventures, of which 54.4% or $16.5 million was in cash with the remaining balance primarily invested in other working capital. To conclude our prepared remarks, we believe our third quarter results demonstrate the continued strength and resilience of our business, highlighted by record quarterly consolidated sales and growth across our core corrosion prevention and bioplastics platforms. While profitability during the quarter was affected by a sharp increase in raw material costs associated with geopolitical disruption in the Middle East, we believe this pressure was temporary and does not change our view of the long-term earnings potential of the business. As we move through the fourth quarter of fiscal 26, we expect continued sales growth and improved profitability supported by pricing actions and disciplined expense management.
We also remain focused on advancing higher-margin ZERUST oil and gas opportunities and expanding Natur-Tec applications globally. We believe these factors position NTIC to deliver stronger financial performance and cash flow generation in the coming quarters. With this overview, Patrick and I are happy to take your questions.
分析師問答
Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, simply press 1-1 again. Please stand by while we compile the Q&A roster. First question coming from the line of Timothy Clarkson with Van Clemens. Your line is now open.
Hey, guys. I have just a couple questions. I was just wondering if you are going to separate the oil and gas business; you said you did, you are on pace to do about $10 million. I guess that is annually. How profitable would that division now be? Would that be a 10% net business or a 5% net business? Or do you not even look at it that way?
We do not specifically look at it like a separate stand-alone business in terms of reporting. You could certainly look at oil and gas and say, yes, we expect total revenue from oil and gas to be around $10.0 million for the year. We know what the gross margins are and what the contribution is going to be. We certainly see how things are ramping up in oil and gas across the board. With expectations for what is happening and what we expect to see in the fourth quarter, that is going to drive a significant amount of profitability.
And so that really is going to be the key contributors. If you look at third quarter oil and gas this year compared to third quarter oil and gas last year, it is certainly up significantly — up 72% in that segment. I would say the disappointment is that if you look at trailing oil and gas numbers, third quarter was lower than second quarter, and the expectation was that we would continue to build that oil and gas revenue. There are some shipping issues; there were some large projects that ultimately ended up being invoiced in June. That will help significantly from a gross margin contribution standpoint in our fourth quarter, which gives me more confidence in our fourth quarter numbers now that we are 40 days into the fourth quarter. A lot more confidence in our fourth quarter compared to where we expected to be earlier.
Sure. But, I mean, in general, the gross margins in oil and gas are higher than the gross margins in the company, correct?
Yes, and we expect that to play out from a weighted-average standpoint. The biggest hit we had in the quarter was the gross margin impact from polyethylene prices increasing by 30-plus percent with the conflicts going on in the Middle East. We have seen polyethylene prices return toward late-August levels, and we expect that to flow through. We saw that flow through in May and June and through our inventory. We were able to pass a lot of those cost increases onto customers, but we still dropped a few percentage points in gross margin because of the situation. We are optimistic given what we have seen in June and with the backlog for July and August. We expect the fourth quarter to be pretty strong — likely our strongest quarter of the year — and it gives us momentum going into fiscal 27.
Right. Now you mentioned there have been some positive things going on in Germany. Can you give a little more color on that?
I think the positive sign in Germany is that revenues are bouncing back compared to prior periods. We are starting to see stabilization and hope that we have hit the trough for industrial demand. If they can get some things figured out at the country level regarding energy prices, we hope that trend continues from our standpoint.
Right. And I assume you guys are always looking to cut expenses wherever you can.
Yes, certainly. But one of the key points Patrick made is we are ramping up revenues and we expect fourth quarter revenues to be higher than third quarter revenues while holding expenses relatively flat. We are not saying the reason we did not make money this quarter is because we increased expenses and made all the investments. We have capped off investments, are holding costs as flat as possible, and we expect increased revenue to drive gross margin dollars to the bottom line in the fourth quarter and throughout fiscal 2027. We do not have significant investment plans at the NTIC level for employees or capital purchases in North America in fiscal 27. There will be some investments at the subsidiary level to meet demand in Brazil for oil and gas and in Natur-Tec India, but those are subsidiary-level investments, not NTIC-level.
Right. Okay. Well, I am obviously anxious to see the improved profitability, and I am still here. Thanks for your time.
Thanks, Timothy.
Thank you. Our next question is coming from the line of John Bear with Ascend Wealth Advisors. Your line is now open.
Thank you, and good morning. Got a couple of questions for you. Number one, can you expand on how you are addressing your ability to source raw materials used for, let's say, Natur-Tec or even for ZERUST, to get away from the need to source raw materials from the Middle East, if that is possible, and how that might play out and help you improve your raw material costs? Second, can you expand on the recently announced compostable seedling cup efforts? Is that something that could be replicated in North America for the U.S. and Mexican markets or even in South America? And can you expand on the timeline for moving from trials to commercialization where it could impact the bottom line?
There are no raw materials that we are specifically sourcing from the Middle East. The issue was the global raw material price impact caused by the situation in the Middle East, and the ripple effect through global trade that flows through the Strait of Hormuz. That ripple effect caused the 30%-plus increase in LDPE prices and increased prices for other base chemistries used in some of our materials. From a production standpoint, over the past three years we have diversified our manufacturing footprint — producing in China and India and subcontracting in Vietnam and Thailand — so that as tariff changes and other events occur, we can capitalize on those locations. We are continuing to pursue that plan and have established the ability to source from different regions globally to get the most effective pricing and keep costs and gross margins stable. Regarding the compostable seedling cups collaboration with Bayer in India, that effort is focused in India for now, but the concept has global applicability. We expect pilot trials in vegetable and fruit nurseries, and if successful, commercialization could begin in about a year. It would be possible to set up operations in the U.S., Canada, or other markets where there are large agricultural needs, but for now the initial focus with Bayer is India.
Okay, very good. Thank you.
Thank you. Our next question in queue is coming from the line of Don Hall with DMH Investments. Your line is open.
Good morning, gentlemen. On previous calls you mentioned some contracts, particularly in Brazil and possibly other countries for the ZERUST product. Are those proceeding as expected, or can you provide more detail?
You are not mistaken. The contract in Brazil relates to opportunities for offshore FPSOs. That is roughly a $14+ million contract over several years and is scaling up as our Brazilian subsidiary takes advantage of it. It's been a process for a few quarters. If you look at Brazilian oil and gas revenue for the nine months ended May 2026 compared to the prior nine months, it's up close to 70%, which is a result of implementing this contract. The project ramps cumulatively — it's not flat annual payments — and as we provide materials and services to FPSOs, the scale increases year over year. In year three you would be implementing on significantly more FPSOs than in year one. So it is moving forward successfully and should lead to increased sales. Additionally, we are seeing increased oil and gas revenue across North America and from our new subsidiary in the Middle East, where we've made significant investments over the past 18 months. Those areas are scaling up and contributing to sizable annual revenue growth in oil and gas.
Okay, good. Thanks very much.
Our next question is coming from the line of Gus Richard with Northland Capital Markets. Your line is now open.
Yes, thanks for taking my questions. I wanted to ask about Natur-Tec. In the press release you mentioned gross margin pressure and new products, which I would expect to help gross margins. Can you talk about the trajectory of those two things in terms of margins for Natur-Tec?
There are different aspects of Natur-Tec. There is the commodity Natur-Tec business — bag liners, cutlery, etc. — and then there are proprietary resin formulations for applications with other companies. For commodity-based trash bag liners, the business is price sensitive, and at times price competition has impacted gross margins. That is what we referred to in the earnings release about Natur-Tec gross margin pressure. We saw some gross margin improvement over the prior 18 months as raw material prices came down, but recent price competition in certain product lines has been a headwind. Those discounts and pricing actions are not one-time issues; they are competitive factors that will remain unless input costs change or customer pricing changes.
Got it. And the war has had an impact on the oil and gas business globally. From your perspective, has the conflict in the Middle East had a positive or negative impact on your oil and gas business — are people ramping up production or ramping it down?
It definitely had a negative impact in the third quarter. Our operations in Dubai were constrained; employees were not allowed to leave their homes at times because of security concerns. That limited what they were able to do and impacted projects and normal business activity in the area.
What we saw in the region was some downturn while the conflict was active. There is infrastructure damage that will need to be rebuilt, and that will require investments over the coming years, which should drive opportunities. So long-term we see continued opportunities; near-term there was a rebound and things have calmed down compared to the second quarter when it was concerning for employees in the region.
Got it. Thanks. On the decision to sell the Beachwood facility: ZERUST industrial is improving and looks strong, so what went into the decision to sell the Beachwood facility?
We have had the Beachwood facility for about 20 years. With the building we purchased in Minnesota and the expansion next to our headquarters, we have had opportunity to consolidate. The Beachwood office housed some oil and gas personnel and R&D staff, and we are bringing those people up to Minnesota to consolidate facilities.
There is no real reason to remain in Ohio from a corporate perspective.
Got it. Lastly, SG&A was a bit above expectations. Was there a one-time item or what is going on with that line?
No, there were no significant one-time charges or expenses in SG&A.
Okay. Thanks so much.
Our next question is coming from the line of Zach Liggett with Desmond Liggett Wealth Advisors. Your line is now open.
Great. Good morning. Thanks for taking the questions. Nice job on the quarter. Given the stress in the Middle East, you seem to be handling things pretty well with the things you can control. On Natur-Tec, can you quantify what the volume growth looked like? And on the innovation front, can you tell us more about the food packaging innovation?
From a revenue standpoint, Natur-Tec revenues for the nine-month period are up 5%. For the third quarter, revenue is up 5%. From a volume standpoint, case quantities are up closer to 10% to 12%, so you can infer what portion of revenue growth is volume versus pricing or concessions. Regarding food packaging, those opportunities are longer in development because of the specific chemistries and the need to ensure the resin can be used on existing customer equipment for food contact applications. These projects take more time, but the applications are positive and represent higher-margin opportunities. We expect some of these food service opportunities in the U.S. and India to fuel Natur-Tec growth over the next 12 to 24 months.
Okay. Last one: on the AI front, are you piloting any projects with your sales teams or internally, and are you seeing any productivity gains from AI tools at this point?
Yes. One benefit we gained when we switched to SAP about 18 months ago is much more accessible data from manufacturing, sales, and product sales. By using external tools such as Claude to analyze large volumes of data, we gain clearer insight into customer ordering behavior, gross margin at the customer level, and gross margin at the product level — things we did not have before. That allows us to target improvements precisely. SAP also offers internal AI tools that can be implemented directly in the system, which will allow employees to pull up information faster and respond to customers more quickly. From executive level down, we are working to implement these tools to be more reactive and tighten up operations; it's not just about efficiency but about better decision-making.
Good. Thanks for taking the questions.
I am showing no further questions in the Q&A queue at this time. I will now turn the call back over to Mr. Patrick Lynch for any closing comments.
Thank you for joining us this morning, and have a nice day.
This concludes today's conference call. Thank you for your participation, and you may now disconnect.