Flexible Solutions International Inc. Q1 2023 Earnings Call

Okay.

Good day, everyone and welcome to today's flexible solutions International first quarter 2023 financials conference call.

At this time all participants are in a listen only mode. Later, 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 and one on your Touchtone phone.

With Chi yourself in the queue by pressing star and two.

Please note this call may be recorded I'll be standing by if you should need any assistance is now my pleasure to turn the conference over to Mr. Dan O'brien. Please go ahead.

Thanks, James good.

Good morning, everybody I'm, Dan O'brien CEO of flexible solutions.

They've harbor provision.

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.

As detailed from time to time in the Companys reports filed with the Securities and exchange.

Welcome to the F. S. A conference call for first quarter of 2023.

I'd like to speak first regarding our company can issue and our product lines, along with what we think might occur in Q2 and Q3.

Great.

Afterward, I will comment on our financials.

Dental care Division.

NCS represents approximately 70% of Fsic's rabbit.

This division makes thermal poly aspartic acid called Tpa for short.

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.

In 2022, and she has started food grade coal production operations.

Using the spray dryer that we installed over the last several years.

Tpa is used in agriculture to significantly increase crop yield.

It works fine slowing crystal growth between fertilizer ions and other irons in the soil, resulting in 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 scale.

Tpa as effect is prevention of scale.

Minerals that are part of the water fraction of oil as it ex exits the rock formation.

Preventing scale keeps to all recovered pipes from clogging.

<unk> also sold is a biodegradable ingredients and cleaning products for certain food uses.

And as a water treatment chemicals.

On 27 and N Savr 30.

Trojan conservation products nitrogen is a critical fertilizer that can be lost through bacterial breakdown evaporation and soil runoff.

Sun 27 is.

She used to conserve nitrogen from attack by soil bacterial enzymes that cause evaporation.

While N savr 30 is effective at reducing nitrogen loss from leaching.

Food products.

Our Illinois plant is food grade inspected and we've got our F. D. A number we've commercialized one food grade product based on poly as far tastes that was developed fully in house.

We have a pipeline of additional products in development that are either our rd's.

Our ideas coal production of outside ideas or a mixture where an outside ideas being optimized by our team.

And so yes, we will focus on food products equally with our other market verticals because we have determined that this is an area with large markets, where skilled in servicing and where we can obtain good margins.

E M P Division.

E N P represents most of our other revenue.

It's focused on sales into the greenhouse turf and golf markets.

As opposed to our NCS sales, which are into row crop agriculture.

The opening of the economy. After the pandemic has affected E M P sales into the home gardening market, especially home cannabis.

Still expect revenue growth in 2023 at close to historic rates, but with the growth more likely in the second half of the year.

Our Florida LLC investment.

L C was profitable in two.

2022, as a whole and again in Q1.

Companies focused on international sales into multiple countries, all of which face different issues and respond and varied ways.

Revenue was very strong in 2022, and we expect more topline growth in 2023.

However, the LLC remains exposed to the high cost of goods, while experiencing difficulty passing all the costs cost to customers.

As a result margins are compressed and earnings may not reach historical levels in the near term, although we do expect an improvement compared to 2022.

Our sales to the LLC you continue to grow and we are able to retain a positive margin.

Our mergers with Legos did not proceed.

On April 18th 2022 F S I in Lagos announced their intent to merge subject to shareholder approval.

Merger was not completed by the end date of the agreement ever 30th 2022 and did not close.

Strategic investment in Lagos.

In December 2020, we invested 500000 in Lagos and return for equity.

We made a second investment in June 2021 for 500000, and then again in equity.

<unk> is using these investments towards development of a microbial route to aspartic acid using sugar as a feedstock.

F S I will be the major user of aspartic acid drive this way and believes that sustainable aspartic acid.

Well allow us to obtain large new customers and develop valuable new products that are both.

Via degrade and come from sustainable sources.

We remain optimistic that we can continue to work with logos.

In ways that don't involve merging.

FSA is dedicated to the goal of sustainability.

While finding a route to the Gulf that is profitable for us for our suppliers since the logos.

Q2 and Q3.

Agricultural products were not as strong in Q1 2023 as they were in Q1 2022.

We feel that some customers who normally buy in Q1 are waiting until Q2 to make orders.

However, we still feel the agricultural sales for the first half will exceed the same period in 2020.

Oil gas and industrial sales of Tpa.

That increase sales throughout 2022.

This was driven by shortfalls of competing products and high oil prices.

Sales are expected to remain steady in 2023, but what's the possibility of temporary reductions.

Yes.

Customers reduce inventory.

Or do maintenance that was delayed in past years.

Tariffs.

Since 2019, and several of our raw materials imported from China have included a 25% tariff.

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

Tariffs are affecting our cost of goods, our cash flow and our profits negatively debates.

Debates stake.

Here's to arrive we submitted our initial applications four and a half years ago.

Oh total dollar amount due back to us as well in excess of a million dollars, we intend to persevere until we succeed and recovering our fun.

Sure thing in inventory.

Ocean shipping from Asia to the U S and ocean shipments from the U S. International ports are back to pre COVID-19 speed, but they just settled at higher prices.

Land transport inside the U S continuing to stabilize.

With shipping issues last year by ordering farhad carrying additional inventory.

Resulting in some costs that we were unable to pass onto our customers in 'twenty to 'twenty three we hope to begin reducing our inventory to a more normal level and replacing expensive raw materials with less expensive ones.

Is this proceeds margins may stabilize at slightly higher levels.

Raw material prices do not appear to be reverting to historic levels.

Instead, they seem to be stabling are stabilizing at a new base level. That's also experiencing inflation.

Passing price increases even small inflation related ones along to customers can take several months.

I'd always possible and it with make resolved and constrained margins throughout the year.

We still believe that revenue operating cash flow and profit can grow strongly in 2023.

But inflationary forces may keep us in a position where selling prices lag cost increases some of the time.

The financial results.

We're reasonably pleased with the results for Q1 2023 year over year revenue and operating cash flow were down.

Possible that certain customers had inventory to work through that.

It's very likely that some agricultural sales were delayed into Q2.

Profits were negatively affected by product mix cost of goods had reduced sales volume.

We estimate that year over year growth in revenue cash flow and profits will continue in 2023 with the increases likely to incur.

Three.

Or.

Sales for the quarter decreased 9% 9.85 million compared with $10 $7 million to $8 million.

Okay.

Profits.

884000, or seven cents, a share compared to one point.

Excuse me 1.5 dollars 3 million or.

<unk> 12 cents a share in Q1 2022.

Operating cash flow.

non-GAAP numbers useful to show our progress it's got the noncash items removed for clarity and then Q1 2023. It was one $7 3 million or 14 cents a share.

Down from 2.4 dollars 7 million or <unk> 20, a share in the 2022.

Long term debt.

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

We've consolidated all of our desks for E N P N NCS with the Stockyard, Spain.

It has resulted in increased lines of credit.

With lower interest rates and reduced interest rates on our long term debt.

At the same time, we bought all the units we did not already own in E&P, Peru investments LLC and.

And guaranteed the mortgage held by the LLC.

E L. L C. One five.

Five acres and 60000 square feet building on the southwest corner of our Peru, Illinois factory.

Our working capital.

Adequate for all other purposes, it's increasing continuously as we booked.

<unk> profit from sales.

Our lines of credit with stock here at bank.

Our subsidiaries are our sufficient and we're confident that we can execute our plans with our existing capital.

Special dividend.

The company declared a special dividend on April 13th which will be paid today shareholders of record.

April 28.

We are pleased and proud to be able to return capital to shareholders. This way.

This is of course, a special dividend.

Not be repeated until management and the board are sure that paying another special dividend can.

Can be done without hurting the forward progress of Ssi.

Text of this speech will be available as an 8-K filing on www Dot FCC dot Gov.

By Wednesday may 17th and email or fax copies can be requested from Jason Bloom.

Jason at flexible solutions Dot com.

Thank you the floor is open for questions and James can you said everybody up please.

Certainly at this time, if you'd like to ask a question. Please press the star and one on your Touchtone phone E.

You may remove yourself from the queue at any time by pressing star to once again that is star and wanted to ask a question Hello pause for a moment to allow questions to queue.

And we'll take our first question of day from William Greg of S ski with Greenwich Global.

Hey, Dan couple of questions for you.

In regards to the Florida LLC on the last conference call. We talked about you mentioned you were unsure if there was anything pulled from the first quarter.

And the first quarter this year was higher than a year ago. So is it.

Safe to assume then that may be nothing was pulled or we can still expect good year over year growth from the Florida LLC.

Oh, good morning, Bill and yes, I I I think I can confirm that.

One did not pull from Q4 and Didnt pull backwards from Q1, so when.

When you see those those numbers are accurate for the quarter ended and they probably unless something changes indicate a good year for the LLC.

Okay.

You mentioned.

Yeah, a couple of times, the AG sales being down in the first quarter, but should still be up in the first half is that the.

There was a large customer you had about $3 million of sales first quarter last year was a million half of this year is that what that was related to or what you're talking about.

That's that's a part of it I mean, it's not going to be any specific customer, but what we're noticing in the AG industry in North America, it's not as true internationally, where they have to account for shipping.

Times, but in North America, where we're seeing.

Hey.

Instituting this at the farmer level that translates to a tentativeness at the distributor level.

Which translates.

Translates to attempting to make just in time purchases from the manufacturer level, which is us.

Yes.

We've talked to several of our.

Perimeters, and even a couple of competitors in.

Everybody is getting the same feeling it's not it's not that people aren't going to buy it's just there are waiting until the last minute.

Okay.

Alright, and then on the food business, you mentioned kind of the southern self developed products some customer demand of products for the self developed products, how what's the plan to market those if theyre not being driven by a customer.

There are our ideas, but we arent taking them to commercialization and less of one of our.

Distribution connections has shown a an immediate and strong interest so.

Yeah.

We're not going to market ourselves.

I think everybody who's followed us for a while has noticed that were not great.

Retail.

Marketing, our salespeople in that where we are.

Our skill set really involve solving problems.

And allowing distribution to get it into the marketplace.

So I think what youre going to see is that if if an idea of ours.

As the volume opportunities in an interested distributor its kind of go forward.

Why is it is going to go on the shelf and we will find another one that does have volume in interest interest interested distributor.

Okay. Okay can you are you able to say how many products you have in the pipeline that are demanded by customers just to get an idea of how.

And youre going to be rolling out a product.

Yeah, I think we I think we've got a we've got five at an advanced level right now.

And.

They are in the food category.

Category, which means that they're not going to be.

Immediate sales they will take several quarters as we go through.

And then they approval process by the distribution.

And follow that will be followed by a medium size first order and then the upward.

Our fourth motion from there. So this is the these are things that are still going to start to come true in the second half of the year.

And accelerate through the future one of the things that I'm going to try and get across every time people ask questions today as that.

We're really positioning ourselves this year for.

Our next.

Growth cycle of several years, we're doing it.

You know I've got and Nobody's asked the question, Yes, I'm sure it's coming about our.

Our.

Wages and ER administered salaries and so forth.

We've got additional capacity in our plants and additional capacity amongst our human resources that we haven't had in the past, it's costing us more money today, but it's going to allow us to earn more money in the future.

Okay.

Then.

Last question I had was you guys put more money into trio is that should we look at that more is because the parking spot for cash or is there nothing no equipment or anything you can spend that money on right now.

That future growth.

Oh, Yeah, no I I think you should look at it as a long term parking not short term parking because it is paying 8% guaranteed.

And as much as 11, 5% every because theres a bonus interest payment every three years.

It's also highly tax advantaged income.

And I think.

I'm, a little bit odd, but I I I do a little bit of pocket to pocket accounting.

The income from our trio.

Investment is virtually equal to the cost of our executive who operates our Cayman subsidiary.

And so I think you should think of it as long term parking parking that guarantees we're going to have.

We'll have covered our executive costs.

Islands.

So interesting question.

And then definitely.

I'll, let you know the boards. The board has looked at this and $1 million or just under $1 million.

That's enough to have into a single investment and we won't be buying any more trio, if we need another parking spot will be looking different building.

Okay, Alright, thanks, Dan.

Bill.

Next we'll hear from Tim Clarkson with van Clemens.

Hey, Dan.

Another nice quarter, obviously, there's fluctuations with sales and earnings.

In terms of a big picture.

Do you see a change in in perception of AV in agriculture with with the with a more emphasis on products like yours that are green that are helping the environment I mean is it.

Is there a shift towards you know people acknowledging that these products not only you know help grow more crops, but also our.

Healthier for the land and so on.

I would have to say that that's a and into individual farmer by farmer.

A lifestyle choice.

It will probably have a lot to do with the age of the farmer and how much how much of the 19 eighties he had to endure.

She.

But I would say that younger farmers that are taking over from their parents are definitely are far more interested in stewarding their land and having it there for their children and grandchildren.

It's amazing what a decade or a decade and a half of decent corn and soybean prices will do for People's thoughts about the future.

Sure. The guys are just worried about next year.

Right right right.

The other question I noticed that your you've done some insider selling on on the on your stock I assume that's just a little bit of a concentration risk and you're looking to diversify your own on resources a little bit.

Yeah, it's even it's even less onerous than that it's I'm expecting a personal tax hit towards the end of this year.

From my Grateful government and I am positioning to have the cash to pay the bill.

Oh, Okay, alright, well that's.

We don't want you go on to jail. So that's a that's a good thing I guess I guess today all I can work all the time.

Yeah, well, maybe then switch Dale I guess and I'm done. Thank thanks, good quarter.

Thank you.

Once again, if you'd like to ask a question. Please press star and one on your Touchtone phone, we'll pause for a moment.

And it appears we have no further questions at this time I will now turn the program back over to Mr. O'brien for any additional closing remarks.

Thanks James.

Well, thanks, everybody I appreciate you coming to coming to listen today and look forward to.

Talking with you again in about three months and we're going to work hard.

Hopefully you have some good news for you.

Take care Bye now.

This does conclude today's program. Thank you for your participation you may now disconnect.

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