Northern Technologies International Corporation (NTIC) — FY2023 Form 10-K
Reporting period: Fiscal year ended August 31, 2023; filed November 21, 2023. This is an annual report, not a standalone fourth-quarter report. NTIC develops corrosion-prevention products and services under ZERUST and compostable and bio-based products under Natur-Tec, operating through subsidiaries and a global joint-venture network.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $79.90 million | $74.16 million |
| Gross profit / margin | $27.80 million / 34.8% | $23.07 million / 31.1% |
| Operating income | $6.02 million | $5.15 million |
| Net income attributable to NTIC | $2.91 million; $0.30 diluted EPS | $6.32 million; $0.66 diluted EPS |
| Cash from operations | $5.54 million | $1.15 million |
| Cash and cash equivalents at year-end | $5.41 million | $5.33 million |
| Working capital | $22.95 million | $23.17 million |
- ZERUST sales rose 7.4% to $61.73 million; Natur-Tec sales increased 8.8% to $18.17 million. Oil and gas ZERUST sales grew 69.3% to $7.80 million.
- Cost of goods sold fell to 65.2% of sales from 68.9%, reflecting lower raw-material costs and a greater contribution from higher-margin oil and gas sales.
- Operating expenses rose 17.6% to $33.43 million, mainly on personnel, selling commissions, professional services, travel, and costs tied to the Taiwan subsidiary.
- Joint-venture equity income was $6.45 million, including a one-time $1.99 million liquidation gain related to Tianjin Zerust. Joint-venture fees were $5.19 million; joint-venture sales, which are not consolidated as NTIC net sales, declined 3.3% to $100.68 million.
Balance sheet, liquidity, and cash flow
- Year-end total assets were $89.34 million and total equity was $70.70 million. Current assets were $39.67 million versus current liabilities of $16.72 million.
- Debt comprised $3.60 million outstanding on a $10 million secured revolving facility and $2.76 million in China subsidiary term loans. The revolving facility was due January 6, 2024, unless extended or otherwise terminated; the China loans mature one year after issuance and are secured by a building.
- Operating cash flow improved to $5.54 million, helped by lower inventory and joint-venture dividends. Investing cash outflow was $3.34 million, including $3.25 million of capital expenditures. Financing cash flow was an outflow of $2.05 million, including $2.62 million of dividends paid.
- Fiscal 2023 dividends declared totaled $0.28 per share. Management said existing cash, expected operating cash flows, joint-venture distributions and fees, and financing availability should fund operations and commitments for at least 12 months.
Changes, outlook, and notable matters
- Attributable net income fell from FY2022, primarily because FY2022 included a $3.95 million nonrecurring remeasurement gain from acquiring the remaining interest in Zerust India; higher FY2023 expenses also weighed on results. FY2023 included the separate $1.99 million Tianjin liquidation gain in joint-venture income.
- Management expected FY2024 capital expenditures of approximately $1.6–$2.1 million, primarily for ERP implementation, equipment, and facility improvements; planned FY2024 research and development spending was $4.4–$4.8 million. The filing provides no specific revenue or earnings guidance.
- Management cited continued growth opportunities in oil and gas and Natur-Tec, but cautioned that oil and gas sales can be volatile due to long sales cycles, customer order timing, oil prices, and market conditions. It also noted continuing exposure to inflation, supply-chain constraints, competition, foreign exchange, and variable joint-venture performance.
- Internal controls and ERC: NTIC identified a material weakness in controls over accounting for employee retention credits (ERCs); disclosure controls and internal control over financial reporting were deemed ineffective as of year-end. NTIC restated its previously issued interim financial statements after determining the credits did not meet the recognition threshold. It applied for $1.14 million of ERCs but recognized no ERC income in FY2023. Management described remediation steps. The auditor issued an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
- Other risks and contingencies: Management said ordinary-course legal matters were not expected to materially affect consolidated results, financial position, or cash flows. Other significant risks include dependence on suppliers and contract manufacturers, global operations and geopolitical events, automotive exposure, and possible ERP implementation disruption.
Investor verification priorities
- Check the revolving credit facility’s status, renewal or repayment after its stated January 6, 2024 maturity, and compliance with its financial covenant.
- Track remediation and testing of the ERC-related material weakness and review the interim restatements and related disclosures.
- Assess whether operating cash flow, receivable collections, and joint-venture cash distributions support investment plans and dividends.
- Separate recurring performance from the FY2023 Tianjin liquidation gain and the FY2022 Zerust India remeasurement gain when comparing earnings.
- Monitor the durability and margins of oil and gas and Natur-Tec growth, alongside joint-venture results and raw-material availability and costs.