Q4 2021 Flexible Solutions International Inc Earnings Call
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Good day, everyone and welcome to today's flexible solutions International full year 2021 financials call.
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I'll be standing by should you need any assistance. It is now my pleasure to turn today's program over to Mr. Dan O'brien, Sir please begin.
Okay.
Good morning, This is Dan O'brien.
Flexible solutions.
Safe Harbor provision.
Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward.
Certain statements contained herein, which are not historical.
Our forward looking statements.
Parents of which involves risks and uncertainties.
These forward looking statements may be impacted either positively or negatively by various factors.
Information concerning potential factors.
The company.
From time to time.
And the Companys reports filed with the Securities and Exchange Commission.
Welcome to the full year conference call for 2021.
Before discussing our financials I'd like to update our company condition and our product lines, along with what in our opinion might occur in early 2020.
But with virus.
Okay implicit subsidiary.
Subsidiary and the Florida LLC investment are all engaged.
Our culture.
And or the cleaning products.
Therefore were considered essential services and are likely to remain so even if restrictions.
Virtually all our employees are fully vaccinated.
Oh, it will have effects on our supply chain out of Asia. It may cause delays from time to time.
Our nano Cam Division.
Yes represents more than half the revenue.
This division makes thermal poly aspartic acid.
For short to.
A biodegradable polymer with many valuable uses.
And she has also manufactures sun 27, and N Savr 30.
Nitrogen fertilizer loss from sale.
C P as used in agricultural.
To significantly increase crop yield it acts by slowing crystal growth between fertilizer ions and other items in the soil golfing in the fertilizer remaining available longer.
Yes.
He is also a biodegradable way of treating oilfield.
Pipes from plugging with mineral scale.
P. P. As effect is that it prevents the scaling out of minerals that are part of the water fraction.
As it exits the rock formation.
The scale must be prevented to keep the oil recovery pipes from clogging.
So on 27 and N. Savr 30 are nitrogen conservation products nitrogen is a critical fertilizer that can be lost through bacterial breakdown evaporation and soil runoff.
Sun 27 is used.
Tariff nitrogen from attack by soil bacteria.
While N savr 30 is directed towards reducing nitrogen lobster.
Evaporation.
E&P Division.
E N P represents most of our other revenue.
N P is focused on sales into the greenhouse turf and golf markets.
While our NCS sales are into row crop agriculture.
Q4 was strong as we hoped.
Q1 has started well.
<unk> similar growth in 2020 two as was experienced in 2020.
Our Florida LLC investment.
Once again this investment was profitable for the full year.
Company is focused on international sales into multiple countries.
All of which are facing different issues and responding and varied ways.
Q4, 2021 was less than hoped for.
However, we've seen a very strong rebound in Q.
Indications are that growth by the L. L C and the 30% range as possible for 'twenty.
Okay.
Our strategic investments in Lagos.
In December 2000, 20-F S. I invested 500000 in Lagos and return for equity.
Made a second investment of 500000 and go into 2021.
Mike I was just using the investments.
Development of microbial route to as far as asset.
Using corn sugar as a feedstock.
F S I would be the major user of aspartic acid drive this way and believes that sustainable aspartic acid would allow us to obtain.
Large new customers and develop new products.
Michael was a scientific team have already successfully developed other organic assets and cannabinoid from sustainable off.
And are recognized as one of the world leaders in bus synthetic biology by their peers in industry and academia.
We have very high confidence in their ability to achieve sustainable aspartic acid through affirmative.
Once the economic microbial route is fully developed plan to work with legos build capacity produce aspartic acid.
And all of them or is it sustainable.
Stable poly aspartame.
Q1, and two in 2022.
If he a sound 27.
They were 30 for agricultural use has peak uptake in Q1 and Q2.
This year is somewhat different due to high crop and fertilizer prices.
Seeing increased interest in our products and stronger ordering.
Maintaining inventory to service customers will be key to maximizing sales and as one would expect shipping delays are not helping.
They are pre ordering of inventory has made sure that no sales have been lost.
Oil gas and industrial sales of Tpa experienced increased sales in late Q4, 'twenty, one and on into <unk>.
Yes.
This is driven by short feel shortfalls of competing products and high oil prices.
Likely to continue through the first half of 'twenty two.
Consider it a permanent effect.
Arabs.
September 30th 2018, and several of our raw materials imported from China.
Alluded, a 10% additional tariff, which then rose to 25% in 19.
U S customers received price increases from US says that's inventory entered production.
Customers are not charged the tariffs.
We have applied for the export rebates available to recover the terrorists.
Accumulating tariff payments to.
Government are affecting our cost of goods, our cash flow and our profits negatively.
So we get the receipt the rebates back.
It's going to take many months.
<unk> been almost four years four years in September .
We submitted we submitted our completed applications more than 345 years ago.
Our total dollar amount due back to us is well over $1 billion in it.
Batesville increased profitability and cash flow, while decreasing cost of goods for future quarters.
<unk> received.
We learned five months ago that our application.
Central government labs, so that our formula based calculations can be verified there's still no timeframe available.
Yes.
Dipping in inventory.
Bush and shifting from Asia to the U S and the ocean shipments from.
U S to international sports continue to take much longer.
As for container or more than tripled the normal.
And land transport inside the U S is also taking much longer than usual and pricing is extremely high there.
We're doing our best to cope with shipping issues by ordering far ahead.
Warning that some disruption will be unavoidable and some of the extra costs will have to be borne by us and customers.
Raw material prices.
I've also increased substantially over the last six months I think price increases along to customers takes several months and results and temporarily constrained margins.
A large proportion of these adjustments were just begun canyon Lake for 2021 and.
And not completed until early March this year.
Our Q4 product profits show the effect of raw material costs advancing far quicker than selling prices cant be revised.
This effect will be less visible in Q1, 2022 still present.
While we expect profits to return to normal levels for the rest of 'twenty.
In fact revenue operating cash flow and profit to grow as fast or faster than it did.
I like some of the financial results.
We're very pleased with the results for 2021 revenue profits and operating cash flow are all up significantly.
These results were achieved in a year when shipping costs, coupled Robert prices raw material prices increased very rapidly.
It's due to the skill and hard work of the whole F. S. I teams.
Yes.
Wrote 2021 we engage with new prospective customers and introduced additional products to our existing customers.
We anticipate that much of this preparation will result in new sales in 2020.
We estimate that we will exceed last year's growth rate all of the above metrics for the coming year.
Sales for the year increased 10% $34 4 million.
And with 31 4 million.
Increased sales are mostly the result of new business small proportions.
Price increases.
Profits.
So it was a profit of 3454 5 million or 28 cents a share.
One up 16% from a gain of 2.98 million or 24 cents.
Fair enough.
2020.
Operating cash flow. This non-GAAP number is useful to show our progress with on cash items.
I've removed for clarity.
2021 it was a 5.65 million.
What do you sense, a share of 24% from $4 5 million or 37 cents per share in the 'twenty.
Long term debt.
We continued to pay down our long term debt. According to the terms of the lungs.
Working capital.
Its adequate for all purposes, and its increasing continuously as we book retained profit from sales.
We also have lines of credit with Midland States Bank for the E N P and NCS subsidiaries.
We're confident that we can execute our plans with our existing.
The equity investment in Lagos was made with cash on hand through F. S. L are Canadian.
The text of this speech will be available as an 8-K filing on www Dot FCC dot Gov by Monday April 4th.
And request email or fax copies from Jason to let them.
As Jason at flexible solutions for them.
Thank you.
Floor is open for questions Chelsea would you.
The explanation and set it up.
Yes, Sir.
At this time, if you would like to ask a question. Please press the star and one on your Touchtone thought.
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Again that is star one to ask a question.
Okay.
And our first question will come.
From a William Greg as ASCII.
Okay.
Hey, Dan.
Got any further questions for you.
In regards to the Florida LLC you mentioned you know the fourth quarter wasn't what you expected and it should kind of get back to normal was there some isolated event in the fourth quarter and should we expect the margins to go back to normal for all of 'twenty two.
Thanks, Phil.
Yes. It was it was an event through the year or a pair of events through the year. The LLC does it.
A high proportion of its business in Brazil, Brazil had a terrible drought last year.
And also I had a falling.
Currency versus the U S dollar what that resulted in is.
FRE oversupply to the Brazilian customers and in Q4 its a.
Normalized their inventories are.
For the for the year and that was where the slowdown happened I as I said in my remarks, the rebound has been substantial.
And the margin is expected to be similar in 2022 was in 'twenty two.
When he was 21 was a an aberrant year for the LLC.
Okay.
Alright, great.
You mentioned on the margins.
Starting to improve in the first quarter U.
Do you expect then by the end of the year you'll.
You'll be back to kind of your normal margin levels.
Passing costs on everything.
I think it'll be earlier than the end of the year I think it will be by the middle of the year.
Okay.
Okay.
With light goes on.
On the last call you had said that you expected some samples and.
In the first quarter of this year did you get that or whats the update on I'm getting test samples.
Oh, the samples have been delayed by a into the second quarter, but we're still expecting them and it's not a.
It's not a technical problem, it's a asked for some size.
It's difficult for them.
I have to send it out.
Contract.
Okay.
Alright.
I know you typically don't like talking about customers button in the filing I'm going to ask anyways.
You know one of your customers customer, which I think was an oil customer was down quite a bit on revenue is there any chance that we'll come back and then you had another one that jumped from a million and a half to $4 million in sales is that repeatable.
I'm not going to specify which which businesses. These groups are in but but E.
The one that was down.
Is rebounding.
And we see it both rebounding and growing for the 2022 years.
The second one you pointed out that we had a very large increase.
He is repeatable and are working to put in place a supply contract with that customer.
That will.
Cause it to continue.
Okay, great great.
In the past you've talked about equipment, you put into Peru, two for a new line of business then you've kept the very big can you give an update on how that's going.
Yeah, absolutely, we're quite proud of it but some of our some of our products.
Quieter spray dry before they can be sold on fully to the customer and in the past we have had our spray drying done by contract.
Machine, we bought him we have activated we're using it for all our internal spray drying.
Requirements now.
Several million pounds a year.
Hi. This is it's dropped our costs it has increased our flexibility and it has prevented.
It has saved us the hassle of finding about 80 trucks a year.
Well I O and in Illinois, which is an enormous.
The reduction in our operations.
Now the capacity of the equipment is is much much more than what we're using it for.
And that's what this was actually one of the reasons for the.
Margin compression in Q4 on top of price increases that didnt get pushed through.
Quickly.
We have on one more step and had our.
Full factory roof is at G. M P facility good manufacturing practices.
Waiting for the inspectors to come and firm that that also will give us is great.
Rubles.
We intend to use this particular spray drying machine.
For our high value high margin spring of.
Products so.
This is an expanding field that we needed to be in for our current products, but we're now finding that as.
Some high profit opportunities for the excess capacity.
We don't have.
Significant little contracts yet.
<unk> them in the second half.
Okay, great Great and then any any plans on resuming the dividend.
The board is reviewing that regularly.
We like the idea of a dividend.
Are still concerned with things like happened this week.
With Shanghai being shut down and we had several we've got several truckloads of raw materials dropped Shanghai ports, it won't get loaded until the city opens up again.
And then of course, our Ukraine mess, we are watching don't think things are stable enough at this point.
When they become stable.
Correct.
Okay, great. Thanks, Dan.
Thanks Bill.
Thank you.
And again that is star one to ask a question and our next question will come from Gregg Hillman.
Yeah, Hi, Dan.
Yeah first of all I wanted to ask you about that like us.
You said you made an equity investment is that into like a a.
A special purpose entity with like us or is that in Lagos itself, whereby you would benefit by from like doses all of their other activity.
Thanks, Greg Good morning, It is say at full equity investment in the AR.
Actual shares of Lago sits in the form of a safe but.
Yes, we would share in it.
We would share in the success of our language as a whole.
Okay, and Oh, no more than 10% of I guess at this point.
We do not.
The valuation.
Of the safe our values are.
Leigh goes from a low of $100 million to Ohio at $150 million.
Hmm.
We don't know which of those numbers will be applied to our shareholding.
Uh huh.
Steve the actuals.
Okay. That's.
Pretty Big Ranch and then what is like is doing to protect its intellectual property and what's your attitude towards you know patents in general versus just a you know oh.
<unk> expertise in manufacturing things and whatnot, that's not permanent.
Mike It was actually maintains a high quality and exceptionally high quality patent lawyer on staff and they are.
Stream lead diligent in making sure that everything they do.
Is.
Well covered.
I approve of what Theyre doing wholeheartedly, because they are at the absolute cutting edge of using cell.
Modification technology.
This organic assets and organic acids are enormously.
And then an enormously large part of our.
Economy everything from.
ROIC asset too.
Dirk assets at Amerigas, it for Fred and.
And that's as far back as it if it goes on and on and on.
My my understanding of their technology is with it.
Seminal platform technology that will eventually allow all of the organic assets.
Would be produced using plant based what's.
And.
I think that at the beginning is a wonderful.
[noise] strategy for a company like flexible solutions, where our seminal.
Our technology was in the Ninety's and the all the seminal.
Patents have worn out you rely much more on.
Trade secret and our engineering expertise and of course, our installed plants.
Action from competition.
Over I will say, we've been making strides in the areas of nitrogen protection.
Nitrogen loss protection for agriculture, and we are filing provisional patents in several areas.
We think.
Our brand new and we're publishing the patents.
We will protect the entire field rather than simply teaching competitors.
Since we've been in where they should go.
Uh huh.
Okay, good and.
Dan.
Another thing about that product that you have that.
Silicon products to prevent.
Vacation farm ponds.
Can you just explain what it is and how it works and what its potential is and how are you going to go to market with it.
Yeah. This is an E&P products.
And.
He explained it in the process simple terms.
In every body of natural water you have.
Regular algae.
And diatoms.
Diatoms produce oxygen.
And that's very valuable to the fish a L E.
He will also produce oxygen, but they are they tend to reduce the light transmission and.
What happens and there needs to be a balance between these two species in order to have a healthy body of water that remains clear oxygen rich and and enjoyable for swimming, let's say.
At times there are often.
Limited in their growth by dissolve silica and the water.
And that silica they use to make their their shelves and if they can't make shelves they can't.
C L E win the competition.
And the water turns green or in some cases blue.
Blue Green.
I can't even become poisonous to pets and of course to the fish living in the Lake I D.
D C.
Silica based product invented by E&P is capable of allowing.
Diatoms to compete properly.
And it's all CNA.
Good L E diatom valence and.
And results in clear clean and Nonpoisonous.
Lake water or pond water if it if you haven't done a golf course or a farm.
This is an economic way of doing things.
And as to going to market. It is already on the market. It's already got you.
$200000 in sales in the South east and using select employees to bring it to other areas. So that we're controlling the message as well as possible.
Like all.
Things, it's not a silver bullet, it's gotta be used right.
And you need to train your sales staff and the team.
And do a little bit of extra cash.
I Hope I got all your questions there.
Yeah, [laughter] all Oh, let me, let me get in queue and ask maybe ask a question later on okay. Thanks, Dan.
Thank you.
Our next question will come from Mr. Al could do line.
Yes, good morning, or whatever time it is in the world for you all.
Thank you, Dan and congratulations on a wonderful year.
My questions have been answered, particularly the Legals relationship obviously, that's a big part of your operations.
But I guess just.
General question.
Some of the challenges I guess headwinds you mentioned.
Obviously you.
Intimately know your business, but it appears as though a lot of those headwinds or something.
Some of the same headwinds that a lot of it would be you know the other companies' competitors are facing so I'm wondering if you could add some.
Some color on.
What do you think are specific to your to your company and what are just some other ones as far as Colgate and things like that that I think maybe.
Headwinds.
Headwinds that pretty much every company in your in your industry.
And I guess on the flip side or are there any tailwind that you would suspect.
Heading into <unk>.
Heading into 2022.
Oh actually are.
An interesting question right.
The headwinds that we face would be shipping.
Increase in chemical costs.
And.
General.
General inflation. It is it is.
As we've always experienced it very hard to raise prices.
This cycle, we've found that raising prices was not easy, but it was understood. So.
But they appear to be a headwind is actually possibly.
Either no wind or a tailwind.
On that area, but definitely the whole disruption of the world shipping organization.
Hi.
It affects them.
And he is differently because inc.
Paying $15000 for a container from Asia.
To Chicago.
Is.
Compared to $3500 a year before.
It makes a huge difference to a company whose average container.
Contains values of getting goods into container or say $50000. That's a that's an enormous change in your cost of goods.
Whereas if your average container contains a million dollars worth of product.
It becomes much closer to a rounding error.
Where we're in the $50000 of product or inventory for container. So it's significant to us.
Our competitors in our specific world are in a similar boat. So it's it's equivalent.
The one tailwind that I I'd like to identify as that.
It looks to me as though crop prices and fertilizer prices and agricultural input prices in general are going to remain high for quite some time.
That's going to allow us to.
Find new customers get them well used to using our conservation.
The increase products.
At a time when.
Multiples are much more in favor.
Sure.
Urea costs.
Thousands of dollars a ton instead of 300 or 400.
Spending.
$3 a ton to protect it from from loss is it's a much easier yourself likewise.
When your crop is selling for 14.
14, or $16, a bushel for soybeans and $10 for corn or $9 per course.
It is an easier sale.
Well look if we can get you an extra 10 bushels you.
You can have those 10 bushels for $20.
These are these are the tailwind that we expect to have going with us in the agriculture market.
Okay. Thank you very much that the debt that answers everything.
Thank you.
Our next question will come again from Gregg Hillman.
Yeah.
Yes, Dan.
Concerning.
You know the management team.
A company.
I was just wondering how hard it is to you know to execute your business plan.
In terms of whether you need like a chief operating officer.
Or.
You know more salespeople or.
Yeah people either in investment banking at to do acquisition.
Did you do to help you with the acquisitions and I was just wondering if you could just talk about.
Oh, what you think the overall strategy. The company is you know it should be and how you know.
Your current mashed metallic coincides with that strategy.
Oh, well and.
Boy, if I could talk for a couple of hours, but frankly it down.
Right.
First thing we did I think I've said this before on on speeches.
Buying a M. P wasn't just about the revenue and the synergies between the company. It was a very calculated.
You are too.
Spring.
Marie the CEO of E M P.
Into the flexible solutions.
Mr. Murray is going to be in the next three to six months, you'll be fully trained and I'll be promoting him to.
Our chief operating officer for the.
For the company, while continuing to use him as CEO of E N E.
Obviously, that's going to cause us to backfill our various places, but we're intending to do it in.
Areas of making our.
S people more efficient.
One of the things we've discovered about our businesses, whether it's oil or <unk>.
AGR culture is that the relationships between the selling.
Our team and the buying people.
After the extremely high level and extremely deep.
Myself George Mason Bloom.
Grace fan Joe fan.
R T.
And of course to more people in the AG industry, Bob and Jason Curbs. They have those relationships. They can pass them on over a period of time and we intend to do those things.
But.
Someone mentioned, a 4 million dollar customer up from a 175 that.
That was a relationship building attributed.
Reputable to origin me working together.
If when it goes to six or $8 million again, it will be a relationship management.
Andy.
New customers that we expect to bring in over the next several years.
It will be done and it's in a similar manner, So making me.
Better and making George better point.
Going to be our first back filling process.
And.
I would say that perhaps a year out.
Looking for.
A next layer whether it comes in a acquisition, which we're very very.
Interested in but we don't want to bring in more problems for ourselves.
We know that we need to.
Backfill and then grow but.
But we can see a forward plan that allows us to grow as quick as we are now or faster.
But I've, just mentioned and back filling make us all a little bit more efficient.
[noise], okay well.
Thanks.
I appreciate it.
Alright, and there are currently no further questions in the queue at this time.
Also you can I ask you to close the meeting and before you do so everyone who joined US today. Thank you very very much and this.
This is the time of year when I'll be talking to you again in six weeks.
They'll have a very good week six weeks and we'll talk again soon.
Thank you Sir.
Ladies and gentlemen, this does conclude today's program and we thank you for your participation you may disconnect at any time.
Okay.
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Yes.
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