Northern Technologies International Corporation (Nasdaq: NTIC) — FY2022 Form 10-K
Reporting period: Fiscal year ended August 31, 2022, compared with fiscal 2021. This is an annual report; it does not provide standalone fourth-quarter results. NTIC sells corrosion-prevention products and services under ZERUST and bio-based and compostable plastics under Natur-Tec, through subsidiaries, joint ventures and distribution partners in more than 65 countries.
Financial performance
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net sales | $74.16 million | $56.49 million | Up 31.3%; includes sales consolidated following the Zerust India acquisition |
| ZERUST sales | $57.46 million | $45.55 million | Up 26.1%; 77.5% of consolidated sales |
| Natur-Tec sales | $16.70 million | $10.94 million | Up 52.7%; 22.5% of consolidated sales |
| Gross profit / margin | $23.07 million / 31.1% | $19.57 million / 34.6% | Margin declined as costs rose faster than sales |
| Operating income | $5.15 million | $8.32 million | Down; lower joint-venture income and higher operating expenses |
| Net income attributable to NTIC | $6.32 million | $6.28 million | Diluted EPS was $0.66 versus $0.64; FY2022 includes a $3.95 million acquisition remeasurement gain |
| Operating cash flow | $1.15 million | $2.89 million | Lower, with inventory and receivables increases among the uses of cash |
| Cash and cash equivalents | $5.33 million | $7.68 million | At August 31, 2022 |
| Revolver borrowings | $5.90 million | None | $7.00 million facility; variable rate of daily BSBY plus 2.50%; maturity January 7, 2023 |
| Working capital | $23.17 million | $25.23 million | Decreased year over year |
Investing cash flow was negative $7.11 million, principally reflecting the Zerust India acquisition, capital expenditures and a joint-venture investment. Financing cash flow was positive $3.19 million, largely from revolver borrowings, partly offset by dividends. Foreign-currency translation reduced comprehensive income by $3.91 million.
Material changes and unusual items
- NTIC acquired the remaining 50% of its Indian joint venture, HNTI Limited (Zerust India), for $6.25 million, effective September 1, 2021. The business was consolidated for FY2022; the filing attributes approximately $10 million of incremental sales to the acquisition. The transaction also generated the $3.95 million remeasurement gain and created $4.78 million of goodwill and a customer-relationship intangible asset.
- Joint-venture equity income fell 36.7% to $4.73 million. Joint-venture sales, which are not consolidated into NTIC’s net sales, declined 14.0% to $104.08 million.
- Cost of goods sold rose to 68.9% of sales from 65.4%, reflecting raw-material, labor and shipping costs that were not fully passed through to customers. Operating expenses increased 15.1% to $28.41 million.
- ZERUST oil-and-gas sales rose 21.5% to $4.61 million. Natur-Tec growth reflected recovery in demand, particularly for finished products in North America and India.
Outlook, risks and contingencies
- Management said available cash, forecast operating cash flows, joint-venture distributions and fees, and financing arrangements should fund operations and commitments for at least 12 months. The $5.90 million revolver balance was due under a facility maturing January 7, 2023; assess its subsequent renewal or repayment.
- FY2023 planned spending includes research and development of $4.4–$4.8 million and capital expenditures of approximately $1.2–$1.5 million. No specific FY2023 revenue or earnings guidance is provided.
- Management expected supply-chain constraints, elevated costs and some COVID-related effects to continue to some degree in FY2023, while noting recent improvement. Risks include inflation, limited or sole-source suppliers, shipping disruptions, foreign-exchange exposure (not hedged), and variable-rate debt.
- Other key exposures include dependence on joint-venture income and discretionary dividends, the significance of German JV EXCOR, automotive production and the shift toward electric vehicles, and the long, volatile sales cycle for oil-and-gas projects. Natur-Tec faces strong competition, lower margins and limited suppliers for base resins.
- After year-end, NTIC announced an initial BP Exploration (Caspian Sea) contract to provide corrosion-protection services for 12 storage tanks through December 2025, described as its largest such contract to date. The filing gives no contract value and does not establish the timing or amount of resulting revenue.
- NTIC terminated its Russian joint venture in May 2022 and said the entity was immaterial. Management stated that pending claims and legal matters were not expected to materially affect results, financial position or cash flows. The financial statements received an unqualified audit opinion; the auditor did not attest to internal-control effectiveness. Management concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- How much of sales and earnings growth is recurring and organic versus attributable to consolidating Zerust India, and how results compare excluding the one-time $3.95 million remeasurement gain.
- The revolver’s post-January 7, 2023 status, interest cost, covenant compliance and the company’s liquidity after acquisition spending and dividends.
- Whether margins recover as input and freight costs ease, and whether receivables and inventory convert to cash.
- Joint-venture performance, distributions and EXCOR’s contribution; the filing contains differing joint-venture service-fee figures in separate passages, so verify the audited financial-statement amount and reconciliation.
- The BP contract’s value, implementation costs, milestones and revenue recognition, as well as actual FY2023 spending and performance against management’s stated outlook.