Attached files
EXHIBIT 99.2
FY 2011 speech
Good morning. I'm Dan O'Brien, CEO.
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 full year 2011.
Before concentrating on the numbers, I'd like review what we have accomplished
in the last year and our estimates looking forward. 2011 was an exceptional year
for FSI and I'm extremely proud of how hard each employee worked to supply
greatly increased volume to many more customers with only a few additional
personnel. Our dedication to lean operations, low leverage and sales into
multiple market verticals has been maintained. The data I will present later
regarding total revenue growth in relation to EBITDA and operating cash flow
show this very nicely.
Our significant achievements in 2011 include:
Growth of 35% year over year.
Another record sales year of 15.5 million, 4 million higher than 2010.
Growth was recorded in all market verticals with the strongest growth by
percentage being in agriculture once again.
The Alberta sugar to aspartic acid factory was declared "operational". We note
that this does not mean that production is at any specific level yet. Our
Alberta employees are increasing operations at the best rate possible and we
reiterate that we will not make production figures available in the foreseeable
future.
Regarding the biomass factory in Alberta, Canada: This plant is designed to
supply our Chicago operations with most of the aspartic acid that they use for
making poly-aspartic acid. By using sugar in Alberta, we de-link our raw
material supply from oil, which is our current source, shorten our supply line
by several weeks and thousands of miles and dramatically improve the sustainable
content of our finished products. Production from sugar will result in reduced
cost of goods sold and the opportunity to gain customers who insist on
renewable-based materials. The Alberta plant is one of the eventual parts of
optimum success for Flexible Solutions. It plays a supporting role to the
1
NanoChem division by backward integration and simplification of our supply chain
and by reducing the number of external profit margins NCS must pay between the
base carbon source and finished aspartic acid ready to be polymerized in
Chicago.
The NanoChem Division
This division makes polyaspartic acid [TPA] a biodegradable protein with many
valuable uses. It now represents 95% of revenue and is the sales and profit
driver of our company.
TPA is used in agriculture to increase crop yield. The chemical mechanism is the
ability of TPA to maintain crystal embryos of fertilizer salts in their
embryonic form in soil, which has the effect of keeping fertilizer easier for
plants to absorb. The plant expends less energy getting its nutrients and has
more energy available to propagate in the form of valuable seeds. In North
America alone, the wholesale market is over 2 billion a year and most crops are
able to use TPA profitably. 2011 was another good year for fertilizers and
additives due to high crop prices. The market vertical saw continued growth. One
distributor, signed in late 2009, has grown sales faster than any group we have
ever worked with. Based on their excellent 2011 performance, we hope to see good
growth for TPA in agriculture in 2012 and more in 2013 as additional
distributors finish their research and development seasons and begin marketing
seriously.
TPA is a biodegradable way of treating oilfield water to prevent pipes from
plugging with mineral scale. Our sales into this market are strong and oil
companies in the Nordic countries use TPA as part of environmental regulation.
In 2011 oilfield TPA sales increased substantially and are expected to increase
again in 2012 and 2013. We are experiencing interest from forward thinking oil
producing countries other than Scandinavia and have reasonable expectations of
gaining new customers over the next several quarters. There is also research
interest in the concept of TPA as part of tight oil and gas fracturing liquids.
Should this progress from concept to use, TPA would be part of the fracking
fluid and intended to prevent scale from destroying the permeability of the rock
pores. Clogged pores reduce well production. TPA may have added value compared
to existing fluid components due to its biodegradability - it does not need to
be removed when cleaning used fracking water.
Q1 AND REST OF 2012
Revenue in the first 2 months of 2012 has been stronger than 2011. Increases
have been recorded in all verticals of all product lines including swimming
pools. We expect the largest percentage growth in 2012 will be in agriculture
followed by oil field.
We are confident that revenue growth will continue through 2012 at a rate of 20%
to 30%, but variable from quarter to quarter as is usual for small companies.
Based on 2011 revenue this converts to revenue in the range of $18.6 million to
$20.1 million for full year 2012.
Highlights of the financial results:
Sales for the year increased 35% to $15.5 million compared with $11.5 million
for 2010. The result was a gain of $183 thousand or $0.01 per share in the 2011
period, compared to a loss of $190 thousand or $0.01 per share, in 2010.
2
Sales in Q4 were 3.37 million, up 29.6% compared to 2.6 million in the year
earlier period. The Q4 revenue was strong and evenly spread through our various
markets.
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, income tax and
one-time items from the statement of operations. This year the FASB treatment of
consultant option expenses has been changed again requiring that consultant
options be revalued at vesting as well as at grant. This was negative for our
GAAP results. We consider consultant options to be a useful tool and we will
continue using them judiciously.
For full year 2011, operating cash flow was $2.71 million, 21 cents per share
compared to $1.91 million and 14 cents per share in 2010. We are very pleased
with this result. 50% growth in operating cash flow with 35% growth in revenue
indicates that we are controlling costs well. The credit for this goes to our
highly productive employees. The Alberta plant is now termed operational so
starting in Q1 2012, we will report operating cash flow with Alberta plant costs
included in operations. Detailed information on how to reconcile GAAP with
non-GAAP numbers is included in our news release of March 31st.
Income taxes: Our financials include $1.126 million in US income tax paid. The
Canadian division, Flexible Solutions Ltd, is accumulating losses as the Alberta
factory is expensed and, soon, depreciated. This is a planned, short-term
situation since the Alberta plant will generate profit once it begins selling
significant amounts of aspartic acid to the NanoChem division in the US. The
NanoChem division, of course, must remit taxes to the US government based on its
income as a separate US company which is why our tax expenditure is so high in
relation to total GAAP earnings. As income occurs in Canada, the accumulated
losses will be consumed after which our tax load will become a mix of the 25% AB
rate and the 40% Illinois rate.
Finally, our other product lines, Watersavr has had many more inquiries over the
last several months. At least one large prospect is close to ordering. We are
continuing our efforts in Turkey, Morocco, parts of the far-east, Australia and
Spain. Swimming pools will be managed to optimize cash flow for support to other
divisions. By providing a small portion of our Alberta factory to the Pool
Division, we have reduced lease costs by $120 thousand per year, cash that can
be used to drive other projects forward. The Swimming pool products, Ecosavr and
Heatsavr, continue to gain customers and growth is in low double digits - just
not as fast growing as our other divisions.
The text of this speech will be available on our website by Monday April 2nd and
email copies can be requested from Jason Bloom at 1800 661 3560.
[Jason@flexiblesolutions.com]
Thank you, the floor is open for questions.
3
