Q3 2024 Flexible Solutions International Inc Earnings Call

Good day, everyone and welcome to today's flexible solutions International third quarter 2020 for 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.

Registered to ask a question at any time by pressing the star and one on your telephone keypad.

Please note. This call is being recorded and I will be standing by should you need any assistance it.

It is now my pleasure to turn the conference over to Dan O'brien. Please go ahead Sir.

Dan O'brien: Thank you Jamie.

Dan O'brien: Good morning, Dan O'brien CEO of flexible solutions.

Dan O'brien: The East Harbor provision.

Dan O'brien: The private Securities Litigation Reform Act of 1995.

Dan O'brien: Licensed safe Harbor for forward looking statements.

Dan O'brien: 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.

Dan O'brien: 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 Securities and Exchange Commission.

Dan O'brien: Welcome to the <unk> conference call for Q3 2024.

Dan O'brien: I'd like to discuss our accompany condition and our product lines.

Dan O'brien: Along with what we think may occur in the remainder of 2024 in the first half of 2025.

Dan O'brien: Comment on our financials on the second part of the speech.

Dan O'brien: Now <unk> Division NCS represents.

Dan O'brien: <unk> is approximately 7%.

Dan O'brien: This revenue.

Dan O'brien: This division makes thermal quality as part of <unk> acid called Tpa for short.

Well I have accretable polymer with many valuable uses.

Dan O'brien: NCS also manufactures Sun 27, and N Savr, 30, which are used to reduce nitrogen fertilizer loss control.

Speaker Change: In 2022, Mcf started food grade full operations using the spray dryer, we installed over the last several years.

Speaker Change: Tpa is used in agriculture to significantly increase crop yield.

Speaker Change: Slowing crystal growth between fertilizer ions and other items in the soil.

The result was the fertilizer remaining available longer planned two years.

Speaker Change: Tpa, a biodegradable way of treating oilfield water to prevent scale.

Speaker Change: Preventing scale keeps oil recovery pipes from clogging.

Speaker Change: Tpa is also sold as a biodegradable ingredients and cleaning products and has a water treatment chemicals.

Speaker Change: In our food Division.

Speaker Change: Special version of Tpa is sold as a stability.

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.

Speaker Change: Some 27 is used to conserve nitrogen from attack by soil bacterial enzymes that causes operation.

Speaker Change: And N Savr 30 is effective at reducing nitrogen loss from reaching.

Speaker Change: Food products, our Illinois plant is food grade qualified and we haven't received our FDA certification.

Speaker Change: We've commercialized one food product based on quality of spark case that was developed fully in house.

Speaker Change: MTS now has a pipeline of forest products, each with seven figure revenue potential at the final stages prior to purchase orders.

Speaker Change: All of the opportunities.

Speaker Change: Progressed in Q3, and we hope to be able to announce success by the end of the year or early in 2025.

Speaker Change: E&P Division.

Speaker Change: E&P represents most of our other revenue.

Speaker Change: E&P.

Speaker Change: Focus on sales into the greenhouse turf and golf markets.

Speaker Change: <unk> falls into row crop agriculture.

Speaker Change: The mild growth we predicted for the second half of 'twenty 'twenty four is occurring and we expect this trend to continue in 2025.

Speaker Change: The Florida LLC investment LLC was profitable in third quarter to better margins for this investment.

Continued in Q3.

Speaker Change: The company is focused on international agricultural sales into multiple countries.

Speaker Change: In third quarter, we actually sold this access assets for $2 million in cash and $800 per year for five years, the total $6 million.

Speaker Change: Our purchase price was $3 5 million.

Speaker Change: Yes.

Speaker Change: <unk> has retained us as an exclusive supplier for five years, and we hope to extend the contract even longer by being better than your competitors.

Speaker Change: Also retaining our rights to share in the LLC profits during the payout period. According to our remaining ownership ratio.

Speaker Change: The structure of the sale resulted in an accounting loss of $385000 supply for this quarter.

Speaker Change: When we begin receiving the delayed payments from Q4 2025 and 2029.

Speaker Change: What will change to again.

Speaker Change: The onetime accounting treatment reduced earnings for this quarter to five <unk>.

Speaker Change: Agricultural products in the U S are stalling reasonably well a crop prices are still not increasing at the rate of inflation.

Speaker Change: Nor is the pacing of conflict between rising pops of low crop prices.

Speaker Change: We feel that because our products helped increase yield in some cases, while reducing cost and others.

Speaker Change: We will be successful in growing sales in 2025.

Speaker Change: Oil and gas and industrial sales of Tpa were stable in Q3, and this is likely to continue through 2024 in the first half of 2025.

Speaker Change: Food Division sales are expected to grow rapidly in first half of 2025.

Speaker Change: Pending on how early in the period orders are received and any increased uptake for the existing fleet.

Speaker Change: Yes.

Speaker Change: Since 2019, and several of our raw materials imported.

Speaker Change: We imported from China have included a 25% tariff.

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

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

Speaker Change: The rebates are extremely difficult to obtain even though we are entitled to them.

Speaker Change: We submitted our initial applications more than five years ago.

Speaker Change: The total dollar amount due to us as well in excess of $1 million when it grows each quarter.

Speaker Change: We will persevere until we succeed and recovering our funds.

Speaker Change: The election increase the probability of additional tariffs.

Speaker Change: Our U S customers, we will have.

Speaker Change: We will have to raise prices et cetera.

For international customers, we are planning alternative methods to compensate and we will also be much more aggressive in our rebased recovery actions.

Speaker Change: Shipping and inventory.

Speaker Change: Shipping prices and stable, but higher than prior to COVID-19.

Speaker Change: Shipping times are reasonable on the routes, we use none of them are raw products or raw material shifts through the Red Sea area.

Speaker Change: Ordered extra inventory to position on U S. Soil ahead of January 28, 2025.

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

Instead, they are stable and increasing with inflation.

Got it.

Speaker Change: Because even small inflation related ones along with the customer's always takes time.

Speaker Change: <unk> price increases whenever we can.

Speaker Change: We believe that the some of the issues, we faced last year, which resulted in lower revenue lower cash flow and lower profits for the full year.

Speaker Change: Mostly resolved progresses BMA, we've streamlined streamlined our operations.

Speaker Change: By closing, our Naperville, R&D facility and moving all of that work to our crude oil in oilfield.

The exit costs from this action were completed in Q2.

Speaker Change: Benefits became fully evident in Q3.

Some small price increases cycling possible.

Speaker Change: Several large new opportunities have been found in the food and nutraceutical market.

We are proceeding towards revenue early in the 2025 years.

Speaker Change: Before we expect growth will continue and sales cash flow and profit for the rest of 2024 and on into the first half of 2025.

Speaker Change: G L P. One drug production line.

Speaker Change: The drug compounding industry is a logical progression for FSIC, so when our production and production line for injectable drugs became available at an extremely low price we bought.

Speaker Change: We intend to de risk our possible entry by securing sales prior to further extend the expenditure and by looking for partners.

Speaker Change: We will proceed only when we have reduced risks sufficiently.

Speaker Change: Yes.

Speaker Change: It has progressed from good manufacturing practice, the food grade and SQL certification and production over the last three years, we've developed the skills to build and operate clean room environments as part of our closing the nutrition Division.

Speaker Change: And we're comfortable that our skills are transferable to drug operations.

Senior executives are spending portions of their time.

For customers and potential partners. There is no guarantee that we will succeed Anita, but if we do the <unk>.

Speaker Change: Very large revenue and profit opportunity and diabetes weight loss drugs and other highly profitable drug categories.

Speaker Change: Our careful entry into this area has allowed us to avoid the recent price drops and extra availability of <unk> drugs. We remain extremely positive about this opportunity, but finding advance orders for our core partner critical to success.

The financial results.

Speaker Change: Efforts.

Speaker Change: Subsidiaries will continue to examine all of our costs.

Speaker Change: And economize where possible.

Speaker Change: Even more critical as obtaining new sales in the food industry to ensure that our wage and other based costs are.

Speaker Change: Our spread over more revenue.

Speaker Change: Remainder maintained our growth in Q3 with better profits in 2023, and we expect this will continue during the rest of the 24 year and during the first half of 2025.

Speaker Change: Sales for the quarter increased 7% to $9 $31 million compared with $8 seven 2 million in Q3 2023.

Speaker Change: Profits.

Speaker Change: Q3, 2024 drove the profit of 612005 cents a share compared to a loss of 718000 or <unk> <unk> a share in Q3 2023 period.

Speaker Change: This year, there's only 24 Q3 would have been seven except for the one time accounting loss on the sale of the Florida LLC.

Speaker Change: Operating cash flow.

Speaker Change: This non-GAAP number is useful to show our progress with noncash items removed supplier.

Speaker Change: For the first nine months of 2024, it was $5 $91 million or 47, a share up from $3 to $8 million or 26 points of share in the same nine months of 2023.

Speaker Change: The additional factory space and Illinois.

Speaker Change: In the second quarter of 2023, we invested to acquire 80% of an LLC.

Speaker Change: One seven mendota.

Speaker Change: <unk> purchased a large global 137 acres of land in Mendota, Illinois.

We have determined that 240000 square feet is available for our use or for rental.

Speaker Change: The E&P Division has moved all operations to 60000 square feet in the building.

Speaker Change: A second tenant moved in during Q3.

Speaker Change: Of this year and the remaining 130000 square feet will be running on suitable tenants or file.

Speaker Change: Long term debt, while we continue to pay down our debt. According to the terms of the loans.

Speaker Change: Working capital is adequate for all our purposes, we have lines of credit with software it's bank.

Speaker Change: Or the E&P NCS subsidiaries.

Speaker Change: That we can execute our plans with our existing capital.

Speaker Change: The text of this speech will be available as an 8-K filing on www SEC Gov by Friday November 15.

Speaker Change: E mail or fax copies can be requested from Jason Bloom at Jason at flexible solutions thoughts Paul.

Speaker Change: Thank you the slower gopro for questions in General you said everybody up fleets.

Speaker Change: Thank you at this time, we will conduct a question and answer session.

Speaker Change: I would like to ask a question. Please press star and one on your telephone keypad and you will be placed into the queue in the order received.

Speaker Change: You may remove yourself from the queue at any time by pressing the pound and one.

Speaker Change: Once again to ask a question press star one on your phone now.

Speaker Change: We will take our first question from William Greg <unk> with Green Bridge Global.

Speaker Change: Hey, Dan a couple of questions for you.

Dan O'brien: The gross margin side in the last quarter and you mentioned because they were they were good in the last quarter and they're even better this quarter that last quarter was kind of the top end.

Dan O'brien: Should we just look at what the third quarter was as kind of a max in at all.

First going back to a more normalized rate or how do you. How do you think we should look at that.

Speaker Change: I would suggest that the second quarter was a better median position.

And watching us for.

Speaker Change: A period of time since about 2003 I believe.

Speaker Change: <unk> seen.

Speaker Change: Gross margins all over the map.

Speaker Change: And we're pretty variable based on on their lifetime between when we.

Obtained our raw materials in one of our customer actually.

Speaker Change: The box to say so.

Speaker Change: I think I think.

Speaker Change: The best number for now will be in Q2, rather than Q3.

Speaker Change: Okay.

Speaker Change: On the.

Speaker Change: The balance sheet.

Speaker Change: The total debt has been increasing as has the cash do you plan to leave.

Speaker Change: Both there to have the cash for opportunities or.

Speaker Change: Might start paying the debt down faster.

Speaker Change: Our debt.

Speaker Change: It doesn't necessarily have.

Speaker Change: Repayment without penalties.

Speaker Change: And of course, it's floating debt, which.

Speaker Change: Has recently been going down.

Speaker Change: Along with the.

Speaker Change: Central banks decisions.

Speaker Change: We will probably keep the caf at least most of the cash.

Speaker Change: For opportunities.

Speaker Change: And.

Speaker Change: Keep paying down.

At the normal rate if something changes we will change direction, we're also making quite a bit more effort to get the best intra.

Speaker Change: Interest rates on our cash sports.

Speaker Change: Okay.

Speaker Change: And then the last question on the.

Speaker Change: The food initiative.

Speaker Change: You mentioned.

Possibly having contract beginning of next year.

For the four products that don't have customers right now I mean, how close are you or what kind of progress has been made since the last quarter update I'm just.

Speaker Change: And getting those closer to contract.

Speaker Change: What we're finding in the food and nutrition field is that customers, who want to do business with us.

Speaker Change: Always wanted to do just one more test over one more integration.

Speaker Change: Before they buckled down to negotiating the price.

Speaker Change: And.

Speaker Change: Setting a contract and that one more thing.

Speaker Change: Attitude.

Speaker Change: Is what we've been doing for the last three months and expect to be completing across the rest of Q4, we wish it was and so but it appears to be part of the <unk>.

Speaker Change: Market.

Speaker Change: And this and this.

Speaker Change: Historical so we're we're doing the jobs every time, we reiterate today.

Speaker Change: Product it does get better for the call.

Speaker Change: So everyone is much.

Speaker Change: It is very aware of that.

Money really talks and so we feel we're getting very close to the end of this cycle.

Speaker Change: We thought we were close at the end of last quarter and were.

Speaker Change: We're engaged in the one more thing Merry go round.

Speaker Change: Okay.

Speaker Change: Alright, Thats all I have thanks, Dan.

Speaker Change: Thanks, Paul.

Speaker Change: And we'll move next to Tim Clarkson with Van Clemens.

Speaker Change: Hey, Dan excellent quarter again.

Speaker Change: No.

Speaker Change: On the food new area in the food.

Speaker Change: Let's go out a little bit further than a quarter, let's call. It a couple of years I mean is there a potential if these new products hit that does.

Speaker Change: <unk> doubled the size of the company.

Speaker Change: Timber.

Speaker Change: Yes, that's what we're aiming for the market size.

Speaker Change: In these verticals is.

Speaker Change: Well, let's say the addressable market size is.

Speaker Change: Is it is multiples of our current revenue and margins.

Margins. This is why we chose well there are two reasons why we choose to chose to move into this industry. The first one is actually protection isn't related.

Speaker Change: Food and nutrition products in the United States are made in the United States in most cases for consumption in the United States and that.

Speaker Change: <unk> solves a lot of the geopolitical problems.

Speaker Change: If you have to bring products in from outside the U S. The U S customer ends up paying the tariffs because we passed them through.

Speaker Change: Not ideal for quality of life, but it's the way. It is the second reason is that this is a marketplace. That's really very large and very varied and we have a unique skill set and a unique equipment set that allows us we believe to.

Speaker Change: <unk> positioned for multiplying our revenue over the years.

Speaker Change: Sure.

Speaker Change: I know that in the initial product the wind product.

The big deal is.

Speaker Change: Eliminating crystallization.

So that you can move these wines at higher temperatures is that is that the advantage on most of these food products, eliminating crystallization are there other other things youre looking at.

Speaker Change: Well each one is.

Speaker Change: A separate segment.

Speaker Change: Suddenly you need to target areas, where we're looking at is.

Speaker Change: I can name them not guarantee that these are things we're going to close.

We are engaged in sleep base, we're engaged in.

Products that could be utilized.

Speaker Change: Lives for hormone supplementation.

Speaker Change: We're looking at products that.

Or the opposite of sleep AIDS weakness products. So.

Speaker Change: Bob.

Speaker Change: The one product one.

Speaker Change: The one that got us started and it's based on poly as far takes so that's our internal decision, but what's coming to us and the other situations is contract manufacturing.

Speaker Change: For people with other with ideas that they bring to us some problems that we solve for them.

Speaker Change: And essentially what I mentioned to Mr. Greg about the wars.

There's one more iteration thing as a as a function of problem solving when your business plan is to find customers who have problems that need to be solved.

Speaker Change: Sometimes it just takes a little bit longer to get it to protection.

Speaker Change: Right right.

Now with these new products that Youre looking at would have would they have good margins.

Speaker Change: Yes.

Speaker Change: People, who are better than our current emergence.

Speaker Change: Great great well listen I'm very excited and.

Speaker Change: Hanging in there so good work thanks, Dan I'm done.

Speaker Change: Thank you Jim.

And as a reminder, if you would like to ask a question. Please signal by pressing star one at this time.

Speaker Change: And it appears there are no further questions. Mr. O'brien I will turn the conference back to you.

Dan O'brien: Thank you Jen.

Dan O'brien: Everybody, thanks, very much for joining us.

Dan O'brien: The big gap until our full year.

Dan O'brien: Speech in March, but look we're going to keep working hard and.

Dan O'brien: Hopefully you all have some great news.

Dan O'brien: Before then and during them. So thank you again.

Dan O'brien: Instead, it goes above a wonderful Thanksgiving.

Speaker Change: Hey, Bob.

Speaker Change: Okay.

Speaker Change: This does conclude today's flexible solutions International third quarter 2024 financial conference call. Thank you for your participation you may disconnect.

Speaker Change: The House has ended this call goodbye.