EXHIBIT 99.2
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 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 Q3 2019.
Prior to speaking about our financials, I'd like to talk about our corporate
condition and product lines plus what we think might occur over the next several
quarters.
Insurance compensation from the fire has been received in full, but the
accounting and tax effects of the payments will continue to distort and
complicate our financials until year over year comparisons that do not contain
compensation or tax adjustments are available. The first quarter this will occur
is Q1 2020.
Our NanoChem division: NCS represents more than 1/2 of the revenue of FSI. This
division makes thermal poly-aspartic acid, called TPA for short, a biodegradable
polymer with many valuable uses. NCS also manufactures SUN 27(TM) and N Savr
30(TM) which are used to reduce nitrogen fertilizer loss from soil.
TPA is used in agriculture to significantly increase crop yield. The method of
action is 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. The attraction between the TPA and the fertilizer ions also retains the
nutrients closer to the plant roots. Keeping fertilizer more easily available
for crops to use, results in better yield with the same level of fertilization.
We do not recommend reducing fertilizer; instead the grower obtains more salable
crop per acre farmed and a more profitable operation.
TPA in agriculture has a strong economic value for all links in the sales to end
user chain. Even after our margin and the distributor's profits, the grower
receives a good return on his investment in our products.
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
normally grow steadily but slowly. A simple explanation of 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 formation. Scale must be prevented to keep the oil
recovery pipes from clogging.
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SUN 27(TM) and N Savr 30(TM) are our nitrogen conservation products. Nitrogen is
a critical fertilizer but it is subject to loss through bacterial breakdown,
evaporation and soil runoff. Both our nitrogen products are becoming well
respected and sales continue to grow. They utilize much more environmentally
friendly solvents than some of the competing products.
SUN 27(TM) is used to conserve nitrogen from attack by soil bacterial enzymes
while N Savr 30(TM) is directed toward reducing nitrogen loss through leaching
and evaporation. Each of our nitrogen products are equal to, or better than, the
competing products.
ENP, the October 2018 acquisition: ENP is focused on sales into the turf and
golf markets, whereas, our NCS sales are into row crop agriculture - two very
distinct markets. We account for ENP as a subsidiary and expect it to generate
consolidated revenue of greater than $8 million in full year 2019. Historic data
suggest that FSI should expect annual pretax profits of greater than $1 MM from
this division with moderate annual growth. The strong quarters for ENP are 2 and
3 to match the US spring and summer. Q3 rebounded well from the weather problems
encountered in the spring and ENP is positioned for growth in 2020.
Effect of the LLC investment announced in January: This investment generated
quarterly cash flow and profits starting in Q1 2019 as shown in the financials.
The company we invested in will also order substantially more product from us in
each quarter of 2019 than it did in 2018. We expect this growth to continue for
many quarters to come which will further increase revenue and profitability. The
LLC has started representing more of our product line internationally with small
sales already booked. We expect this to grow over several seasons and benefit
our NCS division while also increasing the profits from the LLC which will show
on our bottom line. It is worth noting that the seasonality of the LLC's sales
is opposite to our North American sales which will tend to smooth out our
quarterly revenue numbers in a positive manner. After a poor Q2, the LLC's
purchases from us rebounded in Q3 as predicted and look strong for 4th quarter
and on into 2020.
Watersavr(TM): News regarding Watersavr(TM) trials and sales will be released if
and when it occurs. As the rest of the company grows, Watersavr(TM) will be less
of a focus but will remain available for sale to existing and prospective
customers.
Q4 2019 and the start of 2020
TPA, SUN 27(TM) and N Savr 30(TM) for agricultural use have peak uptake in Q1
and Q2 with early buy volumes occurring in Q4. This is expected again at the end
of 2019 and the first half of 2020. Our seasonality has been significantly
reduced by the ENP acquisition and the LLC investment, indicating that Q4 should
be strong. This, along with Q4 sales for US early buy and winter crop programs
is expected to provide growth in Q4 relative to the year earlier. It is
important to remember that Q4 2018 was the first quarter that ENP was
consolidated into FSI and as a result, the growth rates to be expected in Q4 and
through 2020 will be at organic rather than acquisition levels.
Oil, gas and industrial sales of TPA increased compared to the previous year.
Increased sales into this market vertical are expected to continue through the
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end of the year and through 2020. Full year 2019 revenue will increase very
strongly compared to 2018 driven by; historic operations, the ENP acquisition
and the January LLC investment. We expect that profits and cash flow will also
increase significantly driven by the increases in top line revenue.
Tariffs: Since Sept 30th 2018, all our raw materials imported from China have
included a 10% additional tariff which rose to 25% in 2019. US customers have
received price increases from us now that this inventory is being used. US
customers have received additional price increases when we began using inventory
that was subject to the 25% tariff. International customers are not charged the
tariffs because we are applying for the export rebates available to recover the
tariffs. To hedge against the chance of even higher tariffs, and to service the
increased production in 2019, we have increased inventory substantially. As a
result, 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. Rebates can take many months to arrive after the inventory is
converted and exported. The total dollar amount due back to us has become
significant and continues to increase. The rebates will increase profitability
and cash flow while decreasing cost of goods for the future quarters in which
the rebates are received.
Highlights of the financial results:
Sales for the quarter increased 94% to $7.4 million, compared with $3.82 million
for Q3 2018. The result is a gain of 412 thousand or 3 cents per share in the
2019 period, compared to a loss of $145 thousand or 1 cent per share, in 2018.
Profit for the quarter and year to date is good but, operating cash flow for the
9 months [detailed in our press release yesterday] plus our investment income is
the number that shows how strong we have become by joining with ENP and
investing in the Florida LLC that is also a major customer.
Working capital is adequate for all our purposes and is expected to increase
during 2020 as our revenue grows. We also have a line of credit with BMO Harris
Bank of Chicago. We are confident that we can execute our plans with our
existing capital. The ENP acquisition was funded with a loan from BMO Harris
plus a convertible note to the seller and did not reduce our cash position. The
LLC investment in January was made with cash on hand.
The text of this speech will be available on our website by Monday, November
18th. Email or fax copies can be requested from Jason Bloom at
Jason@flexiblesolutions.com.
Thank you, the floor is open for questions.