Flexible Solutions International Inc.

Good day, everyone, and welcome to today's Flexible Solutions International Second 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 question-and-answer 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 and 2. Please note this call is being recorded, and 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, Madison. Good morning. This is Dan O'Brien, CEO of Flexible Solutions. The 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 a company is detailed from time to time in the company's reports filed with the Securities and Exchange Commissions. Welcome to the FSI conference call for Q2 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 in the second part of the speech. The nanochem division, NCS, represents 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 SUN27 and NSAVER30, which are used to reduce nitrogen fertilizer loss from soil. In 2022, NCS started food-grade toll operations using the spray dryer we installed over the last several years. PPA is used in agriculture to significantly increase crop yield. It acts by slowing the 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 a biodegradable way of treating oil field water to prevent pipes from plugging with mineral scale. 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. Sun 27 and NSAID 30 are nitrogen conservation products. Nitrogens the 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 that cause evaporation, while NSAVER 30 is effective at reducing nitrogen loss from leaking. Food products. Our Illinois plant is food grade qualified, and we've received our FDA certification. We have commercialized one food product based on polyaspartates that was developed fully in-house. This product had normal sales in Q2, which contributed to the good results for the quarter. And the customer has indicated that orders for the full year will substantially exceed full year 2023, so we expect solid performance in Q3 and Q4. NCS now has a pipeline of five products. each with seven-figure revenue potential at the final stages prior to 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 revenue. E&P is focused on sales into the greenhouse, turf, and golf markets, while NCS sells into row crop agriculture. We expect some EMP revenue growth in 2024 with the growth concentrated in Q3 and Q4. Florida LLC investment. The LLC was profitable in second quarter, and the better results for this investment in Q1 carried through into Q2. The company is focused on international agriculture sales into multiple countries. Subsequent to the end of the quarter, we sold this asset for $2 million in cash and $800,000 per year for five years. Our total purchase price was $3.5 million. The LLC has retained us as an exclusive supplier for five years, and we hope to extend the contract even longer by being better than any competitors. We expect sales to the LLC to grow in 2024. Agricultural products in the U.S. are selling reasonably well, but crop prices are still not increasing at the rate of inflation. The recent reduction in inflation rates may have a positive impact on 2025 early buy decisions that take place in Q4. We think the growth in 2024 remains 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 Q2, and this is likely to continue throughout 2024. Food division. Sales are sure to grow based on our customers' order schedule, and they may grow even further if POs 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 now charged the tariffs because we've applied for the export rebates available to recover them. The tariffs are affecting our cost of goods, our cash flow, and our profits negatively. The rebates are extremely difficult to obtain, even though we are entitled to them. We submitted initial applications more than five years ago. The total dollar amount due back to us is well in excess of a million, and it 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 are raw materials shipped through the Red Sea area. Raw material prices do not appear to be reverting to historic levels. Instead, they're stable but increasing with inflation, passing our price increases, even small inflation-related ones along to customers. It takes several months, and it's not always possible. We believe that some 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 streamlined our 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 completed in Q2, so the benefits will become fully evident in Q3. Some price increases have been possible. Several large new opportunities have been found in the food and nutraceutical market and are proceeding toward revenue in the 2024 year. Therefore, we expect the growth will continue in sales, cash flow, and profit for the rest of the year. Option grants. In the first half of 2024, the company granted many more options than our usual. $850,000 were granted to employees and consultants for prospective activity in the medical drug compounding field. The board set harsh vesting plans terms for these option grants. In general, none will vest unless the company successfully begins operating as a drug compounder and drug revenue reaches $100 million per year. The company believes that if vesting is attained, the shareholders will be well compensated for the dilution. It should also be said that the board does not expect further grants other than our small annual employee consultant grant. GLP-1 drug production line. The drug compounding industry is a logical progression for FSI. So when a production line for injectable drugs became available at an extremely low price, we bought it. We intend to de-risk our possible entry by securing sales prior to further expenditure and by looking for partners. Only if we can de-risk sufficiently will we proceed. FSI has progressed from good manufacturing practice to food grade certification and production over the last three years. We've developed the skills to operate in clean room environments as part of our food nutrition division, and we're comfortable that our skills are transferable to the drug operations. Senior executives are spending portions of their time searching for customers and for potential partners. There's no guarantee that we will succeed in either, But if we do, there's a very large revenue and profit opportunity in injectable diabetes weight loss drugs. Other highly profitable drug categories can also be serviced by the production line we own. Highlights of the financial results. FSI and its subsidiaries will continue to examine all our costs and economists where possible. Even more critical is obtaining new sales in the food industry to ensure that our wage and other base costs are spread over more revenue dollars. We resume growth in Q2 at a low rate, but with better profits, and we expect to show incremental success in these areas during the course of the 2024 year. Sales for the quarter increased 2% to $10.53 million compared to $10.33 million in Q2 2023. Profits. Q2 2024 shows a profit of $1.29 million or $0.10 a share compared to a profit of $810,000 or $0.07 a share in Q2 2023. Operating cash flow. This is a non-GAAP number, and it's useful to show our progress with non-cash items removed for clarity. For the first half of 2024, it was 3.85 million, or 31 cents a share, up from 3.22 million, or 26 cents a share, in the first half of 2023. Long-term debt. We continue to pay it down according to the terms of the loans. Additional factory space in Illinois. In the second quarter of 2023, we invested to acquire 80% of an LLC called 317 Mendota that in turn purchased a large building on 37 acres of land in Mendota, Illinois. We have determined that 240,000 square feet is available for our use or for rental. The ENP division has moved all operations to 60,000 square feet of this building. The remaining 180,000 square feet will be rented when suitable tenants are found. Working capital. is adequate for all our purposes. We have lines of credit with Stockyards Bank for the ENP and NCS subsidiaries. We're confident that we can execute our plans with our existing capital. The text of this speech will be available as an 8K filing on www.sec.gov by Friday, tomorrow, the 16th, And email or fact copies can be requested from Jason Bloom at jason at flexiblesolutions.com. Thank you. The floor is open for questions, and Madison, will you set that up for us, please?

Thank you. And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. And we will pause for a moment to allow questions to queue. And we will take our first question from Tim Clarkson with Van Clemens.