Flexible Solutions International, Inc.

Flexible Solutions International, Inc.

$3.92
-0.04 (-0.89%)
American Stock Exchange
USD, CA
Chemicals - Specialty

Flexible Solutions International, Inc. (FSI) Q2 2016 Earnings Call Transcript

Published at 2016-08-15 17:00:00
Operator
Good day, everyone and welcome to the Flexible Solutions International Second Quarter 2016 Financial Results Conference Call. Today’s conference is being recorded. And at this time, I’d like to turn the conference over to Mr. Dan O’Brien. Please go ahead, sir. Dan O’Brien: Thank you, Robby. Good morning. This is Dan O’Brien, CEO of Flexible Solutions. The 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 involves 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 Q2 FSU conference call. Prior to focusing on our financials, I’d like to talk about our product lines and what we may – that we think may occur over the next several quarters. The NanoChem division represents most of the revenues of FSI. This division makes thermal polyaspartic acid called TPA for short, a biodegradable protein with many valuable uses and NCS also manufactures SUN 27 and N Savr 30, 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 limiting crystal embryo growth between fertilizer IMs and other IMs in the soil resulting in fertilizer remaining available longer to increase yield. The attraction between the TPA and the fertilizer ions also reduces fertilizer run off. Keeping fertilizer easily available to crops results in better yield with the same level of fertilization. TPA in agriculture is a unique economic situation for all links in the sales to end user chain. FSI earns a fair profit on manufacturing, distribution earns a strong profit selling to dealers. Dealers make good profit selling to growers and yet the growers still earns a great profit from the extra crops he produces with the same land and the same fertilizer program. More than 350 trials over the last 15 years have demonstrated that investing $10 to $20 in acre in TPA can be pay back $30 to $100 or more. For example, two quarts per acre of TPA added to the normal fertilizer program on potatoes has been shown to increase the marketable yield by up to £8200 per acre at $0.12 a pound this brings the grower $964 in net new revenue per acre. TPA is also a biodegradable way of treating oil field water to prevent pipes from plugging with mineral scale. Our sales into this market are well established and growing, but can be subject to temporary reductions when production is cut back, when platforms are shut down for reconditioning. A simple explanation of TPA’s effect in the oil industry is that it prevents the scaling out of minerals that are part of the water fraction of oil as it – excuse me, exits the rock formation. The scale must be prevented to keep the oil recovery pipes from clogging. Used as a biodegradable addictive and fracking fluid, TPA has the same effect on the pipes, but is also known to reduce scale plugging of rock pores, thus increasing the flow of oil and gas to the pipes from the rock. Many alternative chemicals are used to prevent pore plugging, TPA is the biodegradable choice. SUN 27 and N Savr 30, RR nitrogen conservation products, nitrogen is a critical fertilizer, but it is subject to lost through bacterial breakdown in soil runoff, both our products are becoming well-respected and seeing increasing sales. However most nitrogen conservation products are bought and Q1 and we do not see significant sales for the rest of the year. SUN 27 is used to conserve nitrogen in cold dry soil, while is directed towards nitrogen retention and warm wet sale soils. Both our nitrogen products are equal to or better than the competing products and we have a very competitive pricing structure. WaterSavr, we're continuing efforts in the USA, Turkey, Morocco, Chile, Brazil, parts of East Asia and Australia. WaterSavr could have had a breakthrough last year with the project in Wichita Falls, Texas. Our 2014 success in saving 18% of the evaporation on a 5,600 acre drinking water reservoir was set to be repeated in 2015. However, in that year Texas experienced massive flooding with much loss of life and property just as WaterSavr was due to be ordered for the ‘15 evaporation season, Texas is once again short of water in 2016 even though it is not reached full drought conditions. We believe that Texas will be contacting us at the end of the next rainy season in May 2017. I think it's important to illustrate the potential of WaterSavr using it on Lake Mead in Arizona for 10 months a year would save enough fresh water to supply Las Vegas for six months. We’re focused on maintaining momentum in the US, Southwest and elsewhere with the hope that are decade-long history of safe and cost effective water conservation will win significant contracts over the next several quarters. Q3 and Q4 2016, EX10, our brand name for TPA for agricultural use had peak uptake in Q1 for the 16 season, but with six significant sales on into Q2 sales for the 2017 season will begin in Q4 and suggesting that Q3 will be quiet. SUN 27 and N Savr 30 the nitrogen products for agriculture have finished their sales season which is Q1. Growth in oil field use of TPA driven book by our worldwide sales efforts is likely. But with the caveat that the fall in oil prices has reduced hydraulic fracturing activity and we will not see increases in purchases from frackers until the oil price recovers to the point where the backlog of drilled wells starts to be fractured. Raw materials for our products are increasing, but we will not be able to raise prices in the current environment and margins may contract as a result. WaterSavr expect sales in Q3 during summer in the northern hemisphere, we can't predict which prospects we’ll buy and how much, but we are active in enough geographical areas that we hope to obtain some WaterSavr revenue. Unless oil prices decline again, we’re comfortable predicting that full year 2016 revenue will be higher than 2015. Throughout second half ‘16 we expect some growth in revenue with lumpy quarterly numbers because of customer behavior, shipping dates, weather, crop pricing, oil platform maintenance and the other variables of our business. Here are the highlights of the financial results, sales for the quarter decreased 4% to $3.73 million compared with $3.90 million for Q2, 2015. The result is a gain of $561,000 or $0.05 a share in the ’16 period compared to a gain of 319,000 or $0.02 a share in 2015. Share count was - in the quarter was lower by $1.75 million due to the January 2016 buyback at $0.90 a share, but even without this positive event, earnings per share increased. Our working capital is very adequate, the company's growth is supported by retained earnings and a line of credit with a Chicago-based bank. We're confident that we can execute our growth plans with internal funds. FSI also provides a non-GAAP measure useful for judging year-over-year success. Operating cash flow, it’s arrived at by removing taxes, interests, depreciation, option expenses and onetime items from our statement of operations. For the six months ending June 30, 2016, operating cash flow was $2.52 million or $0.22 a share compared to $1.86 million or $0.14 a share in the six months period of ‘’15. The 2015 numbers are based on shares outstanding prior to the buyback while the 2016 number are based on the new share count after the buyback. The detailed information on how to reconcile GAAP and non-GAAP numbers is included in our news release of last week. The text of this speech will be available on our website by Monday, August 15 and email or fax copies can be requested from Jason Bloom at 1-800-661-3560; and his email is jason@flexiblesolutions.com. Thank you. The floor is open for questions. Robby, will you tell everybody how to do that and get it organized please. Dan O’Brien: Thanks. Rob, can you the call the meeting to a close and I'll make one more comment after that.
Operator
That does conclude today's call. Thank you for your participation. Dan O’Brien: And thank you all. I'll be looking forward to speaking to at the Q3 conference call in about three months. Thank you. Bye.