Flexible Solutions International Inc.

Good day, everyone, and welcome to today's Flexible Solutions International third quarter 2024 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 register 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 is now my pleasure to turn the conference over to Dan O'Brien. Please go ahead, sir.

Thank you, Jen. Good morning. I'm Dan O'Brien, the CEO of Flexible Solutions. 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 involved 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 Q3 2024. I'd like to discuss our company condition and our product lines first. along with what we think may occur in the remainder of 2024 and the first half of 2025. I'll comment on our financials in the second part of the speech. Nanochem Division. NCS represents approximately 70% of FSI's revenue. This division makes thermal polyaspartic acid called TPA for short. It's biodegradable polymer with many valuable uses. NCS also manufactures Sun 27 and N-Saver 30, which are used to reduce nitrogen fertilizer loss from soil. In 2022, NCS started food grade soil 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 crystal growth between fertilizer ions and other ions in the soil. The result is the fertilizer remaining available longer for the plant to use. TPA is a biodegradable way of treating oil-filled water to prevent scale. Preventing scale keeps oil recovery pipes from flooding. TPA is also sold as a biodegradable ingredient in clean products and as a water treatment chemical. In our food division, a special version of TPA is sold as a stability aid. Sun 27 and N-saver 30 are nitrogen conservation products. Nitrogen is a critical fertilizer. It 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. And N-saver 30 is effective at reducing nitrogen loss from leaching. Food products. Our Illinois plant is food grade qualified and we have received our FDA certification. We've commercialized one food product based on poly aspartate that was developed fully in-house. NCS now has a pipeline of five products each with seven figure revenue potential at the final stages prior to purchase orders. All of the opportunities have progressed in Q3 and we hope to be able to announce success by the end of the year or early in 2025. EMP division. EMP represents most of our other revenue. EMP is focused on sales into the greenhouse, turf, and golf markets. NCS falls into row crop agriculture. The mild growth we predicted for second half of 2024 is occurring, and we expect this trend to continue in 2025. The Florida LLC investment. The LLC was profitable in third quarter. The better margins for this investment continued in Q3. The company is focused on international agricultural sales into multiple countries. In third quarter, we actually sold this asset for $2 million in cash and $800,000 per year for five years, a total of $6 million. Our 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 also retain our rights to share in the LLC profits during the payout period, according to our remaining ownership ratio. The structure of the sale resulted in an accounting loss of $385,000 applied to this quarter. When we begin receiving the delayed payments in Q4 2025 and through 2029, the loss will change to a gain. The one-time accounting treatment reduced earnings for this quarter to 5 cents from 7 cents. Agricultural products in the U.S. are selling reasonably well, but crop prices are still not increasing at the rate of inflation. Growers are facing a conflict between rising costs and low crop prices. We feel that because our products help increase yield in some cases while reducing costs in others, that we will be successful in growing sales in 2025. Oil, gas, and industrial sales of TPA were stable in Q3, and this is likely to continue through 2024 and the first half of 2025. Food division sales are expected to be more rapidly in the first half of 2025, depending on how early in the period orders are received and any increased uptake from the existing food supply. 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 have 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. The rebates are extremely difficult to obtain even though applications more than five years ago. The total dollar amount due to us is well in excess of a million and it grows each quarter. We will persevere until we succeed in recovering our funds. The election increased the probability of additional tariffs. For U.S. customers, we will have to raise prices if tariffs increase. For international customers, we are planning alternative methods to compensate and will also be much more aggressive in our rebate recovery actions. 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 raw products or raw materials shipped through the Red Sea area. And we've ordered extra inventory to position on US soil ahead of January 20th, 2025. Raw material prices do not appear to be reverting to historic levels. Instead, they are stable and increasing with inflation. Passing price increases even small inflation-related ones along with the customers always takes time. We are negotiating price increases whenever we can. 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 mostly resolved. Progress is being made. We've streamlined our operations. by closing our Naperville R&D facility and moving all that work to our Peru, Illinois building. The exit costs from this action were completed in Q2, and the benefits became fully evident in Q3. Some small price increases have been possible. Several large new opportunities have been found in the food and nutraceutical market and are proceeding towards revenue early in the 2025 year. We expect growth will continue in sales, cash flow, and profit for the rest of 2024 and on into first half 2025. 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. We intend to de-risk our possible entry by securing sales prior to further expenditure and by looking for partners. We will proceed only when we have reduced risk sufficiently. FSI has progressed from good manufacturing practice to food grade and SQS certification and production over the last three years. We've developed the skills to build and operate clean room environments as part of our food and nutrition division. And we're comfortable that our skills are transferable to drug operations. Senior executives are spending portions of their time searching for customers and potential partners. There's no guarantee that we'll succeed in either. But if we do, there's a very large revenue and profit opportunity. high-profitable drug categories. Our careful entry into this area has an extra availability of GLP-1 drugs. We remain extremely positive about this opportunity, but finding advance orders for a partner is critical to success. The financial results. FSI and its support and economize 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 maintained our growth in Q3 with better profits than in 2020. and during the first half of 2025. Sales for the quarter. They increased 7% to $9.31 million, compared with $8.72 million in Q3 2023. Profits. Q3 2024 shows a profit of $612,000, or $0.05 a share, compared to a loss of $718,000, or $0.06 a share, in the Q3 2023 period. Note that this year, the 2024 Q3 would have been $0.07, except for the one time accounting loss on the sale of the Florida LLC. Operating cash flow. This non-GAAP number is useful to show our progress with non-cash items removed for priority. The first nine months of 2024, it was 5.91 million, or 47 cents a share, up from 3.28 million, or 26 cents a share, in the same nine months of 2023. The additional factory space in Illinois In the second quarter of 2023, we invested to acquire 80% of an LLC called 317 Mendota that 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 EMP division has moved all operations to 60,000 square feet of the building. A second tenant moved in during Q3 of this year, and the remaining 130,000 square feet will be rented when suitable tenants are found. Long-term debt, we continue to pay down our debt according to the terms of the loans. Working capital is adequate for all our purposes. We have lines of credit with Stockyards Bank for the EMT 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 8-page filing on www.sec.gov by Friday, November 15. Email or fax copies can be requested from Jason Bloom at jason at flexiblesolutions.com. Thank you. The floor is open for questions, and Jen, will you set everybody up, please?

Thank you. At this time, we will conduct the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad and you'll be placed into the queue in the order received. You may remove yourself from the queue at any time by pressing pound and one. Once again, to ask a question, press star one on your phone now. We'll take our first question from William Gregorzeski with Greenbridge Global.