EXHIBIT 99.2
Q2 2020 speech
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 Q2 2020.
Prior to addressing our financials, I'd like to talk about our corporate
condition and product lines along with what, in our opinion might occur over the
next two quarters.
Covid virus: The NanoChem Subsidiary, the ENP Subsidiary and the Florida LLC
investment are all engaged in producing for the agriculture and/or the cleaning
products sectors. Therefore, we are considered essential services and are likely
to remain so if restrictions are reinstated. Production and sales are continuing
to meet customer orders. We continued to shrink our inventory and increase our
cash position in Q2 by ordering less inventory than we consumed. This tactic has
been successful and we feel that we now have the right level of inventory to
suit the risks of covid while still having the ability to service our customers.
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.
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.
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.
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.
ENP, the October 2018 acquisition: ENP is focused on sales into the greenhouse,
turf and golf markets, while, our NCS sales are into row crop agriculture - two
very distinct markets. The strong quarters for ENP are 2 and 3 to match the US
spring and summer. Q1 2020 was stronger than the year earlier period and Q2
repeated the feat. ENP expects moderate growth in the second half 2020 with the
caution that Q4 early buy orders could be affected if the virus causes customers
to keep inventory very low.
Effect of the LLC investment announced in January 2019: This investment was
profitable, as usual. The company we invested in sold more in Q2 2020 than it
did in Q2 2019. The Company is focused on international sales into multiple
countries all of which are facing different covid issues and responding in
varied ways. The large number of variables prevents any useful prediction for
second half 2020 other than results similar to 2019.
Q3 2020 and the rest of the year
TPA, SUN 27(TM) and N Savr 30(TM) for agricultural use had peak uptake in Q1 and
Q2 with Q2 showing quite strongly. Early buy orders in Q4 could be reduced if
our customers decide to use just in time strategies.
Oil, gas and industrial sales of TPA are expected to be flat or mildly down in
Q3 compared to the previous year while predictions regarding Q4 are not possible
under the circumstances. Like agriculture, our sales to cleaning products and
water treatment are considered essential leaving only O&G as a market vertical
at significant risk. The risk in O&G is not permanent loss of business, rather,
it is the possibility of some wells shutting down for maintenance while oil
prices are low.
Tariffs: Since Sept 30th 2018, many of our raw materials imported from China
have included a 10% additional tariff which rose to 25% in 2019. US customers
received price increases from us as this inventory entered production.
International customers are not charged the tariffs because we are applying for
the export rebates available to recover the tariffs. 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
are very complicated to apply for and can take many months to arrive. 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. In my last
speech I expressed comfort that we would begin to see rebates in Q2 or early in
Q3. I based this on the fact that we filed our template and request for our
first rebate in mid-May. As of Aug 14, there has been no response from the
government except an excuse that "employees are not in the office". Because
there is a 30 day payment delay even after approval, we no longer expect rebates
in Q3.
Highlights of the financial results:
Sales for the quarter increased 14% to $7.71 million, compared with $6.77
million for Q2 2019. The result is a gain of 1.13 MM or 9 cents per share in the
2020 period, compared to a loss of 28 thousand or 0 cents per share, in 2019. We
attribute the improvement to A] increased sales, B] reduced expenses, C] better
product mix and D] no repeat of the bad debt recognized in Q2 2019. Working
capital is adequate for all our purposes and is increasing during 2020 as we
book retained profit from sales. Effort will be made to minimize inventory and
accounts receivable while increasing cash until the effects of the virus become
more predictable. 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
purchase of ENP in 2018 was funded by a term loan from Harris bank and a $1 MM
convertible debenture taken by the seller. One half the debenture was converted
to 200,000 FSI shares in 2019 while the remaining 500,000 was retired for cash
in Q2. The term loan is approaching half repayment. The LLC investment in
January 2019 was made with cash on hand provided by FSL, our Canadian operating
company.
The text of this speech will be available as an 8K filing on www.sec.gov by
Monday, August 17th. Email or fax copies can be requested from Jason Bloom at
Jason@flexiblesolutions.com.
Thank you, the floor is open for questions.