Flexible Solutions International Inc.

Good day, everyone, and welcome to today's third quarter 2021 financial results. At this time, all participants are in a listen-only mode. Please note this call may be recorded. I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Dan O'Brien. Please go ahead.

Thank you, Chloe. Good morning. This is Dan O'Brien, CEO of Flexible Solutions. Safe harbour provision. The Private Securities Litigation Reform Act of 1995 provides a safe harbour 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 company's reports filed with the Securities and Exchange Commission. Welcome to the Q3 conference call. 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 Q4 2021 and early 2022. The COVID virus. The Nanochem subsidiary, the ENP subsidiary, and the Florida LLC investment are all engaged in producing for the agriculture and or the cleaning product sectors. Therefore, we are considered essential services and are likely to remain open even if restrictions are reinstated. Virtually all of our employees are fully vaccinated at this time. Our Nanochem division. NCES represents more than half of the revenue of FSI. The division makes thermal polyaspartic acid, called TPA for short. It's a biodegradable polymer with many valuable uses. NCES also manufactures SUN27 and NSAVER30, which are used to reduce nitrogen fertilizer loss from soil. TPA is used in agriculture to significantly increase crop yield. It acts by slowing crystal growth between fertilizer ions and other ions in the soil, resulting in the fertilizer remaining available longer for the plants to use. TPA is also a biodegradable way of treating oil field water to prevent pipes from plugging with mineral scale. TPA's effect is that it prevents the scaling out of minerals that are part of the water fraction of oil as it exits the rock formations. Scale must be prevented to keep the oil recovery pipes from clogging. Sun 27 and NSAVER 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 to conserve nitrogen from attack by soil bacterial enzymes, while NSAVER 30 is directed to reduce nitrogen loss through leaching and evaporation. The ENP division. ENP is focused on sales into the greenhouse turf and golf markets, while our NCS sales are into row crop agriculture. Q3 was strong for ENP as expected. Depending on our early order sales, Q4 looks to be moderate or good. If Q4 is moderate, Q1 2022 will be good or the other way around. Regardless of quarter to quarter variability, we expect EMP to continue growing well throughout all of 2022. The Florida LLC investment. Again, this investment was profitable. The company is focused on international sales into multiple countries, all of which are facing different issues and responding in varied ways. This investment is expected to have a good final quarter of 2021 and continue growing in 2022. Strategic investment in Lagos. In December of last year, FSI invested $500,000 in Lagos in return for equity. We made a second investment of $500,000 in June. LIGOS is using the investments to complete development of a microbial route to aspartic acid using corn sugar as a feedstock. FSI would be the major user of aspartic acid derived this way and believes that sustainable aspartic acid would allow us to obtain large new customers and develop valuable new products. LIGOS is scientific team have already successfully developed other organic acids and cannabinoids from sustainable feedstock and are recognized as one of the world leaders in synthetic biology by their peers in both industry and academia. We have high confidence in their ability to achieve sustainable aspartic acid through a fermentation route. Once the economic microbial route is fully developed, we plan to work with LIGOS to build capacity and produce aspartic acid, which we can then polymerize into sustainable polyaspartates. Q3 2021. This is our expectations. Sorry, Q4. TPA, SUN27, and NSAVER30 for agricultural use had peak uptake in Q1 and Q2. Q3 was lower, but still good. In Q4, early order sales are likely to result in a strong quarter. Then in Q1, we're going to be back in the peak season again. Q4 oil, gas, and industrial sales of TPA are expected to increase slowly, and more slow increases likely in Q1 2022. Tariffs. Since September 30th, 2018, several of our raw materials imported from China have included a 10% additional tariff, which then rose to 25% in 2019. U.S. customers received price increases as this inventory entered production. International customers are not charged the tariffs because we've applied for the export rebates available to recover the tariffs. The accumulating tariff payments to the government are affecting our cost of goods, our cash flow, and our profits negatively until the rebates are received. Obviously, rebates take many months to arrive. We submitted our completed applications more than a year and a half ago. The total dollar value amount due back to us now exceeds a million and continues to increase. The rebates will increase profitability and cash flow while decreasing the cost of goods in future quarters when we start receiving them. In early July, we received a response to our revised application of January 2021. We have learned recently that our application has now been sent to a government lab so that our formula-based calculations can be verified. There's no timeframe available for completion of this step. Shipping and inventory. Ocean shipping from Asia to the US and ocean shipments from the US to international ports continue to take much longer and prices per container are more than triple normal. Land transport inside the US is taking much longer than usual and pricing is extremely high as well. We're doing our best to cope with shipping issues by ordering far ahead. But we warn that some disruption will be unavoidable and some of the extra costs will be borne by us in order to retain our customers. Raw material prices have also increased substantially over the last four months. Passing price increases along to customers can take several months and result in temporarily constrained margins. We expect to see this effect continue in Q4 and onward into the new year. Highlights of the financial results. Sales for the quarter increased 14% to $9.2 million compared with $8.1 million in Q2 2020. The increased sales are mostly the result of new business with a small portion attributable to price increases. Profits. The result of the quarter was a profit of $1.16 million or $0.09 per share in 2021 compared to a profit of $582,000 or $0.05 a share in in Q3 2020. Operating cash flow. This non-GAAP number is useful to show our progress with the non-cash items removed for clarity. In the first nine months of 2021, it was 5.5 million or 45 cents a share compared to 4.1 million or 33 cents a share in the 2020 period. Long-term debt. We continue to pay down our long-term debt according to the terms of loans. Working capital is adequate for all our purposes, and it's increasing continuously as we book retained profit from sales. We also have a line of credit with Midland States Bank, and we're confident that we can execute our plans with our existing capital. The equity investment in Lagos was made with cash on hand provided by FSL, our Canadian operating company. company. The text of this speech will be available as an 8K filing on www.sec.gov by Wednesday, November 17th, and email or fax copies can be requested from Jason Bloom, jason at flexiblesolutions.com. Thank you. The floor is open for questions, and Chloe, will you get that organized for us, please?

Absolutely. At this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may withdraw your question at any time by pressing the pound key. And once again, for your questions today, that is star and 1. And we will take our first question from William Krakowski. Please go ahead.

Hey, Dan. With regards to the Florida LLC, the sales are down the first nine months compared to last year. Is that still just related to the drought in Brazil, or are there other markets being impacted by that?

Morning, Bill. It's primarily the drought in Brazil, and I think we're seeing that revert to a much more normal situation. So I am Not concerned with the results. I think that they'll be reverting to very strong growth starting next year.

Okay. Last quarter, you had said you thought the second half from the floor LC would more than make up for the weaker first half. Do you still think that's the case for the fourth quarter, or will we just look for that for next year? Yes.

No, I think fourth quarter we're still going to see that rebound. It may be just ahead of the year earlier, or it might be quite a bit ahead. I don't think it's going to be below. So that's obviously a guess based with I haven't seen the last – I won't see the last two months until the year's over. So it's a bit of a guesstimate, but I'm pretty confident.

Okay. Okay. The land you sold in Tabor, do you have any idea what the gain on that sale is going to be?

Well, that's an interesting – gain. That was the land on which our factory, which burned down, was situated. I'm not sure gain is ever going to apply to it if you're looking at an actual – increase in selling price over purchase price. But the amount of money we received was $350,000 Canadian, less the real estate agent's fees. Does that answer the question?

Yeah, it sounds like it's going to be pretty much more a wash from where you bought it.

Yeah, certainly there's no capital gain involved.

Okay. And last question was, you touched on the LIGOs. Do you have any idea when they might have something ready for you to start trying?

We're expecting samples in Q1 next year, but they're going to be small samples at this stage. We're in the intermediate period between tiny lab work and moderate lab work. We have not reached the stage of commercial reactors.

Okay. Do you have any idea when that might happen or is it just too soon to tell?

It's far too soon to tell. We're aiming for tonnages towards the end of 2022 or early 2023. Good luck would move that forward. Bad luck would move it backwards.

Okay. All right. Thanks, Dan. Appreciate it, Bill.

And once again, that is star and one for your questions. We'll move next to Raymond Howe. Please go ahead.

Good morning, Dan.

Morning, Ray.

How are you?

I'm doing well. How are you?

I'm good, thanks. Hey, quick question. This is irrelevant in the big scheme of things, but the expense side on the water saver was up this quarter. Is that due to... sort of a strategic investment on that side where you're starting to see some more interest or just any color you could give on that would be great.

Yeah, just let me. Sorry, I didn't have that open and it's going to take me a minute. We are seeing interest. I can't comment on exactly what the expense increase was. But we are seeing increased interest. But we always have to be careful. Government employees are wonderful at expressing interest and extremely poor at signing checks. As noted by our tariff issues. Right. So, and I make a really dark joke, especially when we get contacted by California, that we've been trying to convince them since 2002 to use WaterSaver. There'd be an extra 40 feet of water in the Salton Sea if they had done so. And now that they're talking about protecting it, it's gone. So, Sorry to take you on a chase like that, but hopefully it's at least entertaining.

I think a year ago or so on one of these calls, you sort of said that you were going to minimize those expenses unless you saw reason to. So I'm guessing that you saw a reason to ramp those up this quarter?

Yes, and let's also, there are increased sales to go with it. Now I'm catching on to what you're talking about. We sell substantial amounts, about $150,000 a year, into the oil industry in Texas and Oklahoma for protecting their drilling water. So the increased expenses will have had increased sales If not in Q3, we are developing inventory for next year. So the expense is being used for that purpose.

Great. That's all I got. Thank you.

Thanks, Ray.

And once more, that is star and one for your questions today. We'll pause another moment to allow any questions to queue. And it does appear there are no further questions at this time.

Well, thank you, Chloe. Can you close the meeting, please?

Absolutely. This does conclude today's program. Thank you for your participation. You may disconnect at any time.