Q1 2022 Flexible Solutions International Inc Earnings Call

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Good day, everyone and welcome to today's program on flexible solutions International first quarter 2022 financial results. At this time all participants are in a listen only mode.

You will have the opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing the star in one star one on your Touchtone phone you may withdraw yourself from the queue by pressing the pound team. Please note that this call may be recorded I will be standing by if you should need any assistance.

It is now my pleasure to turn the conference over to Dan O'brien.

Thank you Bobby.

Good morning. This is Dan O'brien CEO of flexible solutions.

Safe Harbor provision the private Securities Litigation Reform Act.

Of 1995 provides a safe harbor for forward looking statements certain of the statements contained herein, which are not historical facts are forward looking statements with respect to events, the occurrence of which involve risks and uncertainties.

These forward looking statements may be impacted either positively or negatively by various factors information concerning potential factors that could affect the company is detailed from time to time in the Companys reports filed with the Securities and Exchange Commission.

Welcome to the Q1 <unk> conference call.

Prior to discussing our financials I'd like to update our company condition and our product lines, along with what in our opinion might occur in the second and third quarter of 2022.

Covid virus, the nano Chem subsidiary the E. M. P subsidiary on the Florida LLC investment are all engaged in producing for agriculture, and or the cleaning products sector.

All our employees are all virtually all of our employees are fully vaccinated co.

Covid Lockdowns in China will have the effect on our supply chains out of Asia that may cause delays from time to time.

Our dental care Division NCS represents more than half of the revenue of that that site.

Division makes thermal poly aspartic acid called Tpa for short.

It is a biodegradable polymer with many valuable uses.

NCS also manufactures Sun 27, and N Savr, 30, which are used to reduce nitrogen fertilizer loss from soil.

Tpa is used in agriculture to significantly increase crop yields.

It acts by slowing crystal growth between fertilizer ions and other irons in the soil, resulting in the fertilizer remaining available longer for the plants to use.

Tpa.

Is also a biodegradable way of treating oilfield water to prevent pipes from plugging with mineral scales.

Tpa's effect isn't it prevents the scaling out of minerals that are part of the water fraction of oil as it exits the rock formation.

Scale has to be prevented to keep oil recovery pipes from clogging.

Sun 27, and N Savr 30, our nitrogen conservation products nitrogen is a critical fertilizer that can be lost through bacterial breakdown evaporation and soil runoff.

Some 27 is used to conserve nitrogen from attack by soil bacterial enzymes.

While N savr 30 is directed towards reducing nitrogen loss through leaching and evaporation.

The E&P division.

He represents most of our other revenue and it's focused on sales into the greenhouse.

Find golf markets, while NCS sales are focused on row crop agriculture.

The year has started well and we expect similar growth in 2022.

As was experienced in 2021.

Florida LLC investment.

Once again this investment was profitable.

Company is focused on international sales into.

Into multiple countries, all of which face different issues and respond and bird weights.

We saw a very strong rebound in Q1 2022 compared to fourth quarter of 2021.

Indications are that growth part of the L. L C. In the 30% range as possible for 2022 as a whole.

Strategic investment in Lagos.

In December 2020 at that side.

Invested 500000 in Lagos and return for equity we made a second investment of 500000 in June 2021.

Lagos is using the investment to complete development of microbial routes to aspartic acid using sugar as a feedstock.

<unk> will be the major user of aspartic acid drive this way and believes that sustainable aspartic acid and will allow us to obtain large new customers and develop valuable new products.

Logos as scientific team have already successfully developed other organic acids from sustainable feedstock.

And are recognized as one of the world's leaders in synthetic biology.

Their peers in the industry and academia.

We have high confidence in their ability to achieve sustainable aspartic acid through at fermentation grid.

This route is fully developed we plan to work with legos to build capacity and produces part of cash, which we will then polymerize and just sustainable polyol partakes.

The merger with logos.

On April 18th Ssi, and Lagos announced their intent to merge subject to shareholder approval.

Details of this plan are included in the news release from that day.

The companies are preparing to file an even more detailed documents with the Securities Commission called and asked for.

Until this document is publicly available.

Not able to comment beyond what has been disclosed in the April 18 news release and the 8-K document that is already public at Www Dot FCC Dot Gov.

Q2 with Q3.

Tpa Sun 27 N Savr 30 for agricultural use has peak uptake in Q1 and Q2.

This year is somewhat different due to high crop and fertilizer prices, we're seeing increased interest in our products and stronger ordering.

Maintaining the inventory to service the customers remains key to maximizing the sales.

And as one would expect the shipping delays were not happening are helping.

Excuse me there.

Date, or preordering inventory has made sure.

No sales have been lost.

If the momentum continues through Q2 as it has to the end of April sales for the first half will be significantly higher than your earlier per period.

It will probably slow a little.

Q3, and then celebrate.

During the Q4 early buy season.

Okay.

Oil and gas.

Gas and the industrial sales up Tpa.

We experienced increased sales in late Q4 and on.

On into Q1 'twenty two.

This is driven by shortfalls with competing products and the high oil prices.

We see it continuing in Q2, but we don't consider it a permanent effect at this time.

Okay tariffs.

Since September 30th 2018, several of our raw materials imported from China have included a 10% additional tariffs, which then rose to 25% in two.

2019.

International customers are not charged the tariffs because we have applied for the export rebates available to recover.

The accumulating tariff payments to the government are affecting our cost of goods our cash flow.

And our profits negatively and so when you see the rebates.

Rebates can take many months to arrive.

We submitted our initial applications more than 3.5 years ago.

The total dollar amount due back to us exceeds $1 billion and its continuing to increase.

The rebates will increase profitability and cash flow, while decreasing cost of goods for the future quarters in which rebates are received.

We learned six five months ago that our application has been sent to a government lab, so that our formula based calculations can be verified.

The most recent information is that a responsible be provided within 30 days and we may be able to submit finished rebate applications soon after.

Yeah.

Shipping and inventory.

Ocean shipping from Asia to the U S and ocean and shipments from the from the U S to international ports.

To take much longer term prices per container or more than tripled the normal.

Land transferred inside the U S is also taking much longer than usual.

And pricing is extremely high.

We are doing our best to cope with shipping issues by ordering far ahead.

We continue to warn that some disruption will be unavoidable.

And some extra costs will have to be borne by us in order to retain our customers.

Raw material prices have also increased substantially over the last nine months.

Passing price increases along to customers can take several months and resultant temporarily constrained margins.

A large proportion of these adjustments.

Began in Q4 2021.

Were not completed until early March this year.

Our Q4, 'twenty, one profits show the effect of raw material costs.

But that's a much quicker than selling prices can be revised.

This event that fact is less visible in Q1, but it's still present and it should revert toward normal levels over the rest of 2022.

We expect revenue operating cash flow and profit to grow as fast or faster than it did in 2021.

Okay.

Highlights of the financial results.

We're very pleased with the results for Q1.

Revenue and operating cash flow were up significantly.

Net profit, which did not include any PPP forgiveness in 2022 exceeded the 2021 amount, which had more 100 more than $500000 in forgiveness.

We estimate that we will exceed last year's growth rate and all of the above metrics during the coming year.

Sales for the quarter increased 41% to pinpoint $7 million to $8 million compared with $7 six 2 million for Q1 2021.

Profits.

We had a profit of 1.53 million or <unk> 12, a share in 2021 up slightly.

From a gain of $1 45 million or <unk> 12 per share in 'twenty two sorry.

12 cents a share in 2022.

Okay.

Up slightly from a gain of 1.45 million or 12 cents a share in 2021.

Operating cash flow.

This non-GAAP number is useful to show our progress with noncash items removed for clarity.

For 2020 for Q1.

It was 2.4 dollars 7 million or <unk> 20, a share.

Up from 1.43 million or 12 cents a share in the 'twenty one period.

Okay.

Long term debt.

We're continuing to pay down our long term debt. According to the terms of the loans.

Our working capital is adequate for all of our purposes and is increasing continuously as we book retained profit from sales.

We also have lines of credit with Midland States Bank for the E&P and NCS subsidiaries.

We're confident that we can execute our plans with our existing capital.

The equity investment in Lagos was made with cash on hand through FSL, our Canadian operating company.

Now the text of this speech will be available as an 8-K filing on www Dot FCC Dot Gov.

By Wednesday may 18th.

Mail or fax copies can be requested from Jason Bloom.

Jason at flexible solutions dotcom.

Thank you the floor is open for questions. Bobby will you set that up for me. Please.

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Okay.

We will take our first question from William Greg Osowski with Greenwich Global.

Hey, Dan.

Sales to the Florida, LLC only count accounted for 16% this quarter, which was among the lowest despite record revenue for the quarter for the company as a whole do you think the non Florida LTE revenue will continue to grow this fast or is a lot of that related to the more one time oil related.

Sales you just mentioned.

Yeah.

Well, it's two things first thing Hi, Bill how are you.

Two things are you absolutely certain you've got the right customer because we don't declare by.

Hmm by name and then the second point.

It really did to the nub of your question.

We saw a.

Very significant increases in many of our agricultural.

Customers in Q1, we're seeing.

Continuation of that in Q2.

And we expect that because of the good work we're doing for these people.

But we will be able to continue on this way over the years.

The actual mix is going to be.

Whatever the actual mix comes.

And that will be related to the ratio of growth.

Existing and new customers compared to the ratio of gross.

At the LLC, so like I really can't predict whether the percent will stay the same.

Okay.

Bob.

You mentioned, though about the Florida LLC.

30% year over year growth is what they're looking for for 22 over 21.

Correct, that's their internal target.

Okay.

Okay.

And then gross margin still when you talk about you know returning to a normal level kind of the rest of the year, what do you define as a normal level.

Yeah.

I'm not going to put a number on it bill but.

I would say that.

Compared to if you look at Q4 versus Q1, you can see that.

In Q4, we were really hurting we were.

In some cases.

Some very very few cases, we were only break even for customers.

We've come most of the way back.

I think there is still a little bit left but were.

It's not going to be a massive change between now and the end of the year.

Yeah.

Okay.

And it looks like you've been building inventories you mentioned do you expect any shortages or.

Delays in getting product.

From China that might impact sales at some point this year.

It's possible.

Why the reason we've been building inventory is that obtaining.

Obtaining product is not the problem, it's obtaining it on time.

Yeah.