Flexible Solutions International Inc.

Good day, everyone, and welcome to today's Flexible Solutions International First Quarter 2024 Financials. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the questions and answers session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note this call is being recorded. It is now my pleasure to turn the conference over to Mr. Dan O'Brien. Please go ahead.

Thanks, Natalie. Good morning, everyone. This is Dan O'Brien, CEO of Flexible Solutions. Safe harbor provision. The Private Security 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 company's reports filed with the Securities and Exchange Commission. Welcome to the FSI conference call for Q1 2024. To start, I'd like to discuss our company condition and our product lines. along with what we think might occur in the remainder of 2024. I will comment on our financials afterwards. Nanochem division. NCS represents approximately 70% of FSI's revenue. This division makes thermal polyaspartic acid, called TPA for short, a biodegradable polymer with many valuable uses. NCS also manufactures Sun 27 and NSAVER 30, which are used to reduce nitrogen fertilizer loss from soil. In 2022, NCS started food grade pole operations using the spray dryer we installed over the last several years. 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 plant to use. TPA is a biodegradable way of treating oil-filled water to prevent pipes from plugging with mineral scale. Preventing scale keeps the oil recovery pipes from clogging. And TPA is also sold as a biodegradable ingredient in cleaning products and as a water treatment chemical. In our food division, a special version of TPA is sold as a liquid stability aid. Sun27 and NSAVER30 are nitrogen conservation products. Nitrogen's a critical fertilizer that can be lost through bacterial breakdown, evaporation, and soil runoff. Sun27 is used to conserve nitrogen from attack by soil bacterial enzymes that cause evaporation, while NSAVER30 is effective at reducing nitrogen loss from leaching. Food products. Our Illinois plant is food grade qualified, and we've received our FDA certification. We've commercialized one food product based on polyaspartates that was developed fully in-house. This product had weak sales in Q1, which contributed to the underwhelming results for the quarter. However, the customer has indicated that orders for the full year will substantially exceed full year 2023, so the weakness is probably only in a single quarter. We have a pipeline of additional products in development that has increased during the quarter. NCS now has five products, each with seven-figure revenue potential. At the final stage is the purchase orders. We believe that purchase orders will be received for at least two of these products in 2024. E&P division. E&P represents most of our other revenues. E&P is focused on sales into the greenhouse, turf, and golf markets, while NCS sells into row crop agriculture. We expect some E&P revenue growth in 2024, with the growth concentrated in Q3 and Q4. Our Florida LLC investment. The LLC was profitable in first quarter. We were pleased to see much better margins for this investment in Q1. and hope this will continue for the remainder of 2024. The LLC is focused on international sales into multiple countries, all of which face different issues and respond in varied ways. We expect the sales of the LLC to grow again in 2024, leading to a larger profit on our investment. Agricultural products in the United States are facing resistance from growers to spending on inputs when crop prices are not increasing at the rate of inflation. We think the growth in 2024 is probable, but most of it will be international and recognized through sales to the Florida LLC. Oil, gas, and industrial sales of TPA were stable in Q1, and this is likely to continue throughout 2024. Food division sales are sure to grow based on our customer's order schedule. They may grow even further if PO are received for any of the products in development. Tariffs. Since 2019, 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 the tariffs. The tariffs are affecting our cost of goods, our cash flow, and our profits negatively. Rebates are extremely difficult to obtain, even though we are entitled to them. We submitted our initial applications more than five years ago. The total dollar amount due back to us is well in excess of $1 million and grows each quarter. We will persevere until we succeed in recovering our funds. Shipping and inventory. Shipping prices are stable, but higher than prior to COVID. Shipping times are reasonable on the routes we use. None of our products or raw materials ship through the Red Sea area. Raw material prices do not appear to be reverting to historic levels. Instead, they are stable and increasing with inflation. Cost and price increases, even small inflation related ones along the customers Always takes several months and is not always possible. We've raised prices to all customers over the last six months, and we're planning to continue this program if we can. We believe that the sum of the issues we faced last year, which resulted in lower revenue, lower cash flow, and lower profits for the full year, have partly resolved. Progress is being made. We've streamlined operations by closing our Naperville R&D facility, and moving all the work to our Peru, Illinois building. The exit costs from this action were nearly all taken in Q1, so the benefits will become evident in Q2 and Q3. Some price increases have been possible, but not enough to recover margins yet. Several new opportunities have been found in the food and nutraceutical market and are proceeding toward revenue in the 2024 year. Therefore, we expect that growth will resume in sales, cash flow, and profit for the rest of 2024. Highlights of the financial results. FSI and its subsidiaries will continue to examine all of our costs and economize where possible. Even more critical is increasing sales in our existing businesses and obtaining sales in the food industry to ensure our wage and other base costs are spread over more revenue dollars. We set the stage for this in Q1 and expect to show incremental success in all of these areas during the course of the 2024 year. Sales for the quarter, they decreased 6% to 9.2 million compared to 9.8 million in Q1 23. Profits, Q1 2024 shows a profit of 457,000 or 4 cents a share compared to a profit of 884,000 or 7 cents a share in Q1 2023. Operating cash flow. This non-GAAP number is useful to show our progress with non-cash items removed for clarity. For Q1 2024, it was 1.34 million or 11 cents a share down from 1.73 million or 14 cents per share in Q1, 2023. Long-term debt. We continue to pay down our long-term debt according to the terms of the loans. Additional factory space in Illinois. In the second quarter, 2023, we invested to acquire 80% of an LLC called 317 Mendota. that in turn purchased the large building on 37 acres of land in Mendota, Illinois. We've determined that 240,000 square feet is available for our use or for rental. The EMP division has moved all operations to 60,000 square feet of this building, and the remaining 180,000 square feet will be rented when suitable tenants are found. Working capital. It's adequate for all our purposes. We've got lines of credit with Stockyards Bank for the EMP and MCS subsidiaries. We're confident that we can execute our plans with our existing capital. The text of this speech will be available as an AK filing on www.sec.gov by Friday, May 17. Email or fax copies can be requested from Jason Bloom, jason at flexiblesolutions.com. Thank you. The floor is open for questions. Natalie, will you take care of the details of how to do that? Thank you.

Thank you. At this time, if you would like to ask a question, please press star and 1. You may remove yourself from the queue at any time by pressing star 2. And once again, that is star 1 to ask a question. We will now pause for a moment to allow questions to queue. Our first question comes from Tim Clarkson with Van Clemens. Please go ahead. Oops, we lost him. And once again, ladies and gentlemen, that is star one to ask a question. And here you go, Tim Clarkson with Van Clemens. Please go ahead.

Hey, Dan, it looks like things are turning around. In terms of if you're going to rate the products in terms of potential, in terms of improving profitability, and you're going to rate them one, two, three, what would be the three products that you're most excited about right now?

All three of them would be in the food division. Let me see what I can disclose. First is the one that we're guaranteed, the liquid stability agent made from polyaspartates. It's first because we know we've got that additional revenue coming this year. Um, second would be a product in the, uh, in the field of personal nutritional health, uh, for a fairly large company. And third would be a second product for the same company, also in the field of personal nutritional health. And I guess by personal nutritional health, what I'm talking about is vitamins. Sure. Yeah.

Would you say these products have reasonably good margins?

The margins are in the 35% to 45% range, so those are what I would call excellent for our industries.

Sure, sure. Well, good. That's what I know, and I appreciate your response, Dan. Thank you. I'm done. Appreciate it, Tim.

Our next question comes from William Grzywski with Green Ridge Global. Please go ahead.

Hey, Dan. On the accounts receivable, those were up around 13 million and the Florida LLC is making up a good chunk of that. Is there any reason for that number rising and any concern about collectability?

Morning, Bill. Collectability, no. We're very comfortable. We've also seen that the LLC is recovering the margins to the best of their ability. I haven't got a specific answer for you for the increase, but I suspect that there was a bolus of sales in the last month and that LLC has a 60-day terms. So it wouldn't take very much to cross a quarter to distort it or not. Well, I don't know if you'd even call it distorted. but to change it upwards, which would then result in the next quarter, it changing downwards. So I don't see a reason for concern. I would call it just a cutoff point noise.

Okay.

On the tariff, I know we've been talking about that for a long time. Is there any sense of, you know, you guys, when you might start getting something back or if you'll get something back?

Well, the if answer is we intend, even if we have to sue the federal government, we're going to get that money back because it's just simply criminally unfair to offer a rebate program and then don't let people access it. In terms of when, as you know, it's been five years. We don't carry it on our books as... as anything. So it's not distorting our financials, but it sure is irritating people who come to work every day and do our job, kind of expect the federal government to do the same.

Okay. You mentioned the first food product that you have sales for now should be up substantially this year compared to last year. Can you give a sense for what those sales were last year or what you're looking for this year?

It's probably going to be an increase between $1 and $2 million in gross billings.

Okay, great.

And then with the other products, you talked about the five other products.

Mr. Gregoski, did we lose you?

Yeah, it's not me. It's definitely Mr. Gregoski.

All right. If you can hear us, William, if you would like to press star zero, we can grab you and assist you. Or try depressing your mute buttons. It appears we may have just lost him, sir. Once again, ladies and gentlemen, if you would like to ask a question, that is star and one. It appears that we have no further questions at this time, Mr. O'Brien.

Thank you, Natalie. Please close the meeting, and I will contact Mr. Greg Azowski because I know him personally. Thank you.

Thank you. this does conclude today's conference thank you for your participation you may disconnect at any time