EXHIBIT 99.2
Conference Call Speech Q1 2013
Good morning. I'm Dan O'Brien, 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 statement 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 first quarter 2013.
Before commenting on the financials specifically, I'd like to speak about where
we are in our major projects and what we expect for the next quarters.
Our sugar to aspartic acid plant, in Alberta, has been in operation over a year.
We do not provide volume information or details of production. However, revenue
generation is continuing, depreciation of the factory is included in our
financials and the Taber production team is focused on steady increase in
quantity, efficiency and quality. The goal of the Taber plant is to eventually
supply most of the aspartic acid we require from local sustainable feed-stocks
The aspartic acid made in Taber combined with the aspartic acid we purchase from
overseas suppliers is the primary raw material for the finished product made by
our NanoChem subsidiary - Thermal Polyaspartic acid or TPA.
Sales of TPA from the NanoChem division now represent more than 90% of revenue
and has become the main sales and profit driver of our company for the next
several years. By backward integrating our business to control our raw material
supply, Flexible Solutions can ensure that NanoChem's TPA is always competitive
and we remain the leading supplier as the use of TPA increases.
TPA is used in agriculture to increase crop yield. The method of action is
through limiting crystal embryo growth between positive and negative fertilizer
ions in the soil. When embryonic crystals are prevented from transforming into a
fully crystalline form by TPA, the fertilizer remains available at a lower
energetic cost. Keeping fertilizer easily available to crops results in bigger
yields with the same level of fertilization. Treating an acre of land costs a
grower $20 or less and may result in $50 or more in extra yield - even with low
price crops like winter wheat. High value crops such as potatoes have net
returns to the grower measured in hundreds of dollars per acre.
In North America alone, the wholesale market is estimated at over $2 billion a
year and most crops are able to use TPA profitably. This year there was a
significant decrease in first quarter agriculture revenue, which we consider
largely a result of the aftereffects of last season's drought. We believe that
agriculture distributors have delayed orders this spring in response to last
year's weather and the cold, wet start to this year's planting.
TPA is also a biodegradable way of treating oilfield water to prevent pipes from
plugging with mineral scale. Our sales into this market are well established and
growing steadily but can be subject to temporary reductions when production is
cut back or when platforms are shut down for reconditioning. In some areas,
including many Nordic countries and companies operating in the North Sea use of
TPA is mandated as part of environmental regulation.
Q2 AND REST OF 2013
We are optimistic but cautious. Our products are best in their class and in the
past we have attempted to forecast sales based on historical results. However,
none of our customers are on long-term contracts and the worlds various
economies are in continuous flux so we are not able to provide numerical growth
predictions. It is simply too difficult to give accurate guidance at this time.
We do have very early indications that Q2 may recoup most of the revenue decline
experienced in Q1 and we continue to predict that full year 2013 revenue should
be higher than full year 2012. We hope to succeed even during difficult times
and will do our best to provide upside surprises.
2013 Swimming pool sales did increase compared to the same quarter of 2012. The
oil sector is providing us with new opportunities to grow and, of course, when
we get the Alberta plant to significant volume levels, profit margins will start
to improve and new customers insistent on sustainable products may become
available. We continue to caution that continuous high oil prices have increased
aspartic acid prices. This increases our cost of goods substantially and affects
margins until production gains at the Alberta plant can relieve the pressure. We
do our best to increase prices to our customers but are not always able to do so
immediately.
Highlights of the financial results:
Sales for the quarter decreased 13% to $4.5 million compared with $5.19 million
for 2012. The result is a profit of $65 thousand or $0.00 per share in the 13
period, compared to a profit of $223 thousand or $0.02 per share, in 12.
Now that Alberta factory is operating, a biomass expense is no longer given in
the news release. Instead, due to the generation of revenue from that facility,
depreciation of the factory has begun. This results in a significantly higher
depreciation expense in the financials.
Working capital is more than adequate. FSI's sales tend to be larger during the
first half of the year, resulting in higher accounts receivable, lower cash and
higher inventory. The Company's growth is supported by its, mostly untapped,
$6.4 million line of credit with a Chicago based bank.
Because of the out-size effects of depreciation, stock option expenses and
one-time items on the financials of small companies, FSI also provides a
non-GAAP measure useful for judging year over year success. "Operating cash
flow" is arrived at by removing depreciation, option expenses and one-time items
from the statement of operations.
2
For first quarter 2013, operating cash flow was $474 thousand, 4 cents per share
compared to $1.12 million and 8 cents per share in 2012. We are pleased with
these results but, the pressure on margins from raw material costs is evident in
this metric too. Detailed information on how to reconcile GAAP with non-GAAP
numbers is included in our news release of May 15th.
Regarding our other product lines; Watersavr and pool products are being
emphasized less than the NanoChem division while maintaining the long-term
opportunities and limiting cash and management costs. Swimming pool sales are
back to pre-recession levels and we are planning for growth in the division
through13. Watersavr sales are very difficult to predict because the prospects
are nearly all government organizations. We are continuing our efforts in
Turkey, Morocco, parts of East-Asia, Australia, Singapore and the US. The
recently announced 31% water savings from a trial on Lake Sahara in Las Vegas
done by the Southern Nevada Water Authority has stimulated dozens of inquiries
from around the world with many of them from water stressed parts of the USA.
Small sales are expected at intervals through the year.
The text of this speech will be available on our website by Friday May 17th and
email or fax copies can be requested from Jason Bloom at 1800 661 3560.
[Jason@flexiblesolutions.com]
Thank you, the floor is open for questions.