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EXHIBIT 99.2
Q1 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 Q1 2020.
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.
Covid Virus: The NanoChem Subsidiary, the ENP Subsidiary and the Florida LLC
investment are all engaged in producing for the agriculture sector. Therefore,
we are currently considered essential services. Production and sales are
continuing to meet customer orders. In hindsight, Inventory at Dec 31 2019 was
too high. We were expecting growth in all product lines in 2020. Instead, the
virus is likely to prevent growth or even cause small revenue reductions. We
shrank our inventory and increased our cash position in Q1 by ordering less
inventory than we consumed. This tactic will continue until we feel that we have
the right level of inventory to suit the risks of covid.
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, whereas, our NCS sales are into row crop agriculture -
two very distinct markets. We account for ENP as a subsidiary and, as expected,
it generated consolidated revenue greater than $8 million in full year 2019. FSI
booked annual pretax profits of greater than $1 MM from this division which saw
moderate annual growth. 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. ENP is
hoping for growth again in 2020 with the caution that it could face sales
difficulties as a result of the virus.
Effect of the LLC investment announced in January: This investment was
profitable, as usual. The company we invested in ordered similar amounts in Q1
2020 as it did in Q1 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
other than probable results similar to 2019.
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 become
less of a focus but will remain available for sale to existing and prospective
customers.
Q2 2020 and the rest of the year
TPA, SUN 27(TM) and N Savr 30(TM) for agricultural use have peak uptake in Q1
and Q2. 2020 appears to have more focus on just in time ordering which may
increase or reduce Q2 sales depending on weather. Sales may also be pulled into
Q3. Early buy orders in Q4 could be reduced if our customers decide to continue
with just in time strategies.
Oil, gas and industrial sales of TPA are expected to be flat or mildly down in
Q2 compared to the previous year while predictions regarding Q3 and 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. We are reasonably comfortable in predicting that some rebates will
arrive in late Q2 or early Q3.
Highlights of the financial results:
Sales for the quarter decreased less than 1% to $8.43 million, compared with
$8.47 million for Q1 2019. The result is a gain of 1.26 MM or 10 cents per share
in the 2020 period, compared to a gain of 1.01 MM or 9 cents per share, in 2019.
Working capital is adequate for all our purposes and is expected to increase
during 2020 as we book retained profit from sales. Effort will be made to reduce
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 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 on our website by Monday, May 18th.
Email or fax copies can be requested from Jason Bloom at
Jason@flexiblesolutions.com.
Thank you, the floor is open for questions.
