Good day, and thank you for standing by. Welcome to the NTIC Third Quarter 2025 Earnings Conference Call and Webcast. At this time, all participants are in 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 that your hand is raised. To withdraw your question, please press star one, one again. Please be advised that 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 the 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 would now like to hand the conference call over to your speaker today, Patrick Lynch. Please go ahead.
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 third quarter 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 third quarter fiscal 2025 financial results, provide brief business updates, and then conclude with the question and answer session. Please note that when we discuss year-over-year performance, we are referring to the third quarter of our fiscal 2025 in comparison to the third quarter of last fiscal year. For the third quarter of fiscal 2025, we delivered both sequential and year-over-year growth in consolidated net sales, reflecting strength across many aspects of our business despite ongoing global economic uncertainty.
This performance underscores the dedication of our team and our continued focus on supporting existing customers, expanding global relationships, and scaling in high-growth markets. Gross margin was a particular highlight in the quarter, reaching 38.4%, an increase on both a sequential and year-over-year basis, which reflects the differentiated value we provide our global customer base. At the same time, macroeconomic pressures, especially in Europe, continue to weigh on the profitability of many of our joint ventures. Additionally, as part of our long-term growth strategy, we continue to make planned investments in our oil and gas business, which contributed to higher operating expenses. While macroeconomic pressures and higher operating expenses have impacted third quarter and year-to-date profitability, we expect improvements in the fourth quarter and continued progress in fiscal 2026. With this overview, let's examine the drivers for the third quarter in more detail.
For the third quarter ended May 31st, 2025, our total consolidated net sales increased 4.0% to $21.5 million as compared to the third quarter ended May 31st, 2024. Broken down by business unit, this included a 7.1% increase in ZERUST Industrial net sales, partially offset by a 5.3% decrease in ZERUST Oil & Gas net sales, and a 1.2% decrease in Natur-Tec bioplastics net sales. Turning to our joint venture sales, which we do not consolidate in our financial statements, total net sales for the fiscal 2025 third quarter by our joint ventures decreased year-over-year by 12.9% to $2.3 million. We believe the third quarter year-over-year decline in joint venture sales reflects the continued impacts of high energy prices and regional economic pressures in the European economy, as well as increased uncertainty related to U.S. trade and economic policies and the potential impacts this will have on global supply chains.
We are closely monitoring 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 any economic recovery these stimulus packages may lead to, especially in Germany, to have a positive impact on our joint venture operating income in future periods. Improving sales trends at our wholly owned NTIC China subsidiary continue. Fiscal 2025 third quarter net sales at NTIC China increased by 27.4% to $4.5 million, the second highest quarterly revenue NTIC has achieved since we transitioned to a wholly owned subsidiary in fiscal 2015. Recent NTIC China sales demonstrate growing demand in this geography. The majority of current NTIC China sales are for domestic Chinese consumption, and therefore we believe NTIC China's exposure to U.S. tariffs is limited.
We expect demand in China will continue to improve in fiscal 2025, helping to support higher incremental sales and profitability in this market. In addition, we are committed to the long-term opportunities the Chinese market provides our industrial and bioplastic segments, and we continue to take steps to enhance our operations in this geography. As a result, we continue to believe China will likely become a significant geographic market for us in the future. Now, moving on to ZERUST Oil & Gas. ZERUST Oil & Gas sales were $1.3 million compared to $1.4 million in the same period last year. Seasonality and the timing of orders can impact quarterly comparisons, which is why we encourage investors to look at ZERUST Oil & Gas sales on a trailing 12-month basis.
ZERUST Oil & Gas sales were $8.6 million for the trailing 12-month period ended May 31st, 2025, a 15.4% increase from $7.4 million for the trailing 12-month period ended May 31st, 2024. As we continue to invest in building our ZERUST Oil & Gas sales team and other resources to support future growth, the size and number of opportunities continue to expand among both new and existing customers, which today still focus primarily on protecting above-ground oil storage tanks and pipeline casings from corrosion. The nature of this industry will always cause certain fluctuations in ZERUST Oil & Gas sales. Nevertheless, we still expect to see ZERUST Oil & Gas sales and profitability improve sequentially in the fourth quarter of fiscal 2025 and improve significantly next fiscal year as we leverage these investments and rein in operating expense growth.
Turning to our Natur-Tec bioplastics business, Natur-Tec sales were $5.8 million, representing a 1.2% year-over-year decline in Natur-Tec sales. As expected, Natur-Tec sales rebounded sequentially and increased 16.5% over the fiscal 2025 second quarter. While we continue to monitor the near-term impact tariffs may have on our Natur-Tec sales, the long-term market opportunities remain strong. In addition, U.S. organic diversion mandates and waste management rules are created at the local, municipality, and state levels. We do not expect changes in U.S. federal priorities to impact local U.S. demand for our compostable solutions. We are also working on several larger opportunities for our Natur-Tec solutions that we believe hold significant promise to significantly benefit our sales in the coming quarters. While fiscal 2025 has been more challenging than we expected at the beginning of the fiscal year, we remain steadfast on pursuing a profit-focused, multi-year strategic growth plan.
We are confident in the direction we are headed. Before I turn the call over to Matt, 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 Matt Wolsfeld to summarize our financial results for the fiscal 2025 third quarter.
Thanks, Patrick. Compared to the prior fiscal year period, NTIC's consolidated net sales increased 4% in the third quarter of fiscal 2025 to $21.5 million because of the trends Patrick reviewed in his prepared remarks. Sales across our global joint ventures decreased 9.3% in the third quarter. Joint venture operating income decreased 12.9% compared to the prior fiscal year period, primarily due to a decrease in equity income from joint ventures, which was primarily driven by lower sales at most of NTIC's joint ventures. Total operating expenses for fiscal 2025 third quarter increased 7.6% compared to the prior fiscal year period to $9.7 million, primarily due to increased personnel costs and strategic investments we're making to support expected growth in the second half of the year within our oil and gas business.
As a percentage of net sales, operating expenses were 44.9% for the third quarter compared to 43.4% for the prior fiscal year period. Gross profit as a percentage of net sales was 38.4% during the three months ended May 31st, 2025, compared to 38.2% during the prior fiscal year period. The 20 basis point increase was primarily a result of a more profitable mix of sales and our ongoing efforts to improve gross margin. NTIC reported net income of $122,000 or $0.01 per diluted share for the fiscal 2025 third quarter, compared to $977,000 or $0.10 per diluted share for the fiscal 2024 third quarter. For the fiscal 2025 third quarter, NTIC's non-GAAP adjusted net income was $228,000 or $0.02 per diluted share, compared to the non-GAAP adjusted income of $1.1 million or $0.11 per diluted share for the fiscal 2024 third quarter.
A reconciliation of GAAP to non-GAAP financial measures is available in our third quarter fiscal year 2025 earnings press release that was issued this morning. As of May 31st, 2025, working capital is $21.7 million, including $6.8 million in cash and cash equivalents, compared to $23.7 million, including $5 million in cash and cash equivalents as of August 31st, 2024. As of May 31st, 2025, we had outstanding debt of $10.1 million. This included $7.4 million in borrowings under our existing revolving line of credit, compared to $4.3 million as of August 31st, 2024. Despite the recent increase in our revolving line of credit from $8 million to $10 million to allow for future flexibility, reducing debt through positive operating cash flow and improving working capital efficiencies will be a strategic focus for the remainder of fiscal 2025 and into fiscal 2026.
We generated $3.8 million in operating cash flow for the nine months ended May 31st, 2025. At quarter end, the company had $27.1 million of investments in joint ventures, of which 49.7% or $13.5 million was in cash, with the remaining balance primarily invested in other working capital. During the fiscal 2025 third quarter, NTIC's Board of Directors declared a quarterly cash dividend of $0.01 per common share that was payable on May 14th, 2025, to stockholders of record on April 30th, 2025. Recall, we temporarily adjusted our quarterly dividend to $0.01 per share as a part of our disciplined approach to managing our cash and navigating through this dynamic global environment. To conclude our prepared remarks, we remain committed to our long-term growth opportunities. We are confident that our strategic priorities and financial discipline will drive sustainable growth, improving profitability, and value for our shareholders.
With this overview, Patrick and I are happy to take your questions.
As a reminder, to ask a question, please press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one, one again. Please stand by while we compile our Q&A roster. One moment for our first question. Our first question will be coming from Tim Clarkson of Van Clemens . Your line is open, Tim.
Hey guys, improved quarter. It's sometimes hard to tell when you're focused just on net earnings. What I was looking at, the pre-tax or operational profits from the previous quarter versus this, and there's a significant improvement from the second quarter, obviously.
Yeah, no, it certainly was better, and I certainly think we're trending now and headed in the right direction. I mean, looking across kind of all the different business units, just about every business unit took a step forward going from Q2 to Q3.
Right. Hey, just on a big picture basis, when you look at this oil and gas thing, when you're trying to get one of these guys to switch from the older technologies to your newer technology, on the front end, is your technology cheaper on the front end?
Compared to traditional methods, yes.
Yeah, you know, the electrolysis stuff.
I'm sorry, I didn't understand what you were saying there, Tim.
Yeah. I mean, if you know, let's say that you're a customer and you're looking to switch from the older technology, which uses the electricity deal.
Okay.
You're going to switch to this new technology. I mean, just on the front end, is it cheaper or more expensive or about the same on the front end when you're trying to treat the tanks?
It's much easier installation, and basically, you're spending less money, and it's getting the protection, and you're getting, and ours works better for a longer period of time.
Oh, sure. I mean, there's no question about the long term, but you're dealing with, you know, humans have a tendency to be kind of insect-like, and if, you know, if the benefits are in 10 years, for a lot of these people, you know, that's just an eternity. At least if on the front end it's easier and you save money, you know, that's a benefit immediately that they can justify the switch. Of course, you know, the longer-term benefits are way more significant, but that's important. Now, what's the, in general, on a quarter-to-quarter basis, what's the additional spending that you're doing on sales this year versus last year? What's the additional amount of money you guys are spending per quarter on the sales effort for the oil and gas?
You're talking primarily about personnel, really, in terms of that.
Okay.
Gas in various regions around the world that have experience in the oil and gas industry and in the kinds of areas that we like, and that should basically make our customer conversion happen faster.
Right. What would be the total incremental cost that we're paying up front, the investments we're making right now per quarter versus what we were doing a year ago before we started making this big rollout with the sales expense?
Tim, if you look at it, if you look back to like our fiscal 2023, fiscal 2024 from an oil and gas standpoint, yeah, in North America, we averaged about $4 million. In the current year, we're projected to spend about $5.3 million. We've got about $1.3 million of additional investment in personnel that we've done over the past 12+ months.
That $1.3 million is over a 12-month period, not over a quarterly period.
Correct.
Right. It'd be $300,000, $400,000 maybe per quarter is the additional expenses on the oil and gas.
Yeah.
Right. Of course, the other issue is it's a business that's clumpy, so you'll see a lot of the results in one quarter versus another quarter.
Yeah, I think you'll certainly see a step up in revenue going from Q3 to Q4 as well from an oil and gas standpoint, given where we are in the quarter so far and expectations of backlogs and things like that. Certainly would expect Q4 to be stronger than Q3 from an oil and gas standpoint.
Right. Now, switching to China, that was a strong quarter for those guys. I mean, is China now profitable?
China is profitable, and China has been profitable for some time. What's nice is that we're seeing China as a standalone. If I look back over the past three years, it certainly is a nice trend line from a revenue standpoint. If I look back to the lows that we saw coming out of COVID in our fiscal 2023, first quarter, second quarter, third quarter, where we were at $2.6 million, $2.8 million in revenue per quarter, now putting forth a quarter of $4.2 million shows significant growth in that region. It is profitable, it is contributing, and it looks like what the Chinese are doing from a stimulating their economy standpoint, we are also increasing our revenues accordingly.
You have to remember that this is primarily domestic consumption in China, not for exports.
Right, right. Now, the electric cars, I mean, do they still need some of the technology you have to prevent rust and corrosion?
Yes, just less of it than the traditional combustion engine.
Yeah, less, but they're making a hell of a lot of electric cars, so.
On a per car basis, yes, it's less, but if you're making a hell of a lot of cars, you're going to use a lot more material, obviously.
Okay, I'm good. One last question on the compostable stuff. What's new there? Is business pretty much as usual, or are there any exciting new areas you're seeing on the compostable side?
No. There is one project we're working on, but it's a little too early to talk about revenues. Historically, one of the biggest problems we had with the compostable packaging is the water vapor transmission rate is pretty high. The plastic is pretty permeable, so there's limits to what you can actually package in on a convenient basis. Now, say that we, at least in the laboratory, have managed to fix that problem. There is a possibility of scaling that up and finding significant applications in food packaging that way. We're right now looking to do some, soon start some scale-up production in that area, and we probably will see revenues if it all works out in the next two years or so.
Great. Okay, thanks. I'm done. Thank you.
One moment for our next question. Our next question will be coming from Gus Richard of Northland Capital Markets. Your line is open.
Good morning. I had a couple of questions. I just wanted to walk through the strength in the gross margin. When I look at it on a sequential basis, mix really doesn't imply gross margin should be up as much year on year. It's right in the right ballpark. I'm just wondering, was Q2 a weak gross margin quarter, or what were the drivers sequentially in the improvement?
I think you certainly saw Q2 as being a weak quarter. I think you also see the continued improvement that we're making in trying to be as efficient and effective as we can with the products that we're selling. It's a combination of both, Gus.
Got it. It looks like you're hiring heavily for oil and gas, and I'm just wondering, is this to harvest new customers? Is it to service new regions? If you could explain sort of where you're going there, that'd be helpful.
It's a combination of things. We're looking to cover broader geographies and also go after new applications.
Geographies and applications.
Yes. I mean, we're now building up our presence in the Middle East specifically, but we're also getting new opportunities in South America and in Africa.
Got it. The last one for me, you talked about Natur-Tec , some large opportunities, and I was just wondering if you could kind of give us a sense on relative size and timing of those opportunities.
As I was just mentioning with Tim a second ago, the project that we're working on right now is trying to find applications in compostable plastics in food packaging. What historically has been the problem is that the compostable plastics are too permeable, so it can't contain gases and liquids and still be compostable. We think we've found a way of solving that problem, and now we're trying to figure out, can you scale it up? If so, what food applications can you be going after? We have some significant interest in that area, so we're very confident that we should be able to develop something interesting over the next year or two.
Got it. Got it. Helpful. Thank you very much.
I would now like to turn the conference back to Patrick for closing remarks.
Thank you very much for calling in today. Hope you have a nice week.
This concludes today's conference call. Thank you for participating. You may now disconnect.