Attached files
EXHIBIT 99.2
Q3 2017
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 third quarter 2017.
Before focusing on our financials, I'd like to talk about our recovery from the
fire, our product lines and what we think might occur over the next several
quarters.
The fire at Taber was unfortunate, however, we have received a total of $5.7
million Canadian from our insurance and may receive additional funds in Q4 after
all details of the equipment we lost have been reviewed by our insurer. The
Heatsavr(TM) liquid pool cover is back in production to serve our worldwide
customer base. The property is ready for construction but, because the bids to
rebuild were unreasonably high, we bought an existing building. The new
building, just blocks from the old one, now houses our Heatsavr manufacturing
and accounting activities. The property where the fire took place will be sold
when a reasonable offer is received.
The NanoChem division, NCS, represents most 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 fertilizer remaining available longer for the plants to
use. The attraction between the TPA and the fertilizer ions also reduces
fertilizer run-off. Keeping fertilizer more easily available for crops to use,
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. There are good profits from manufacturer through the
distribution system to the grower, yet the grower still earns a great profit
from the extra crops produced using the same land but no extra fertilizer.
1
In 2017 a distributor for our TPA conducted a side by side trial on alfalfa. The
results were an increase of 9.7% in dry crop weight but more importantly, the
protein level in the alfalfa increased 30%. This is yet another illustration of
the positive effect TPA has on farm yields.
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
growing steadily but, can be subject to temporary reductions when production is
cut back or when platforms are shut down for reconditioning. 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. The 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. Both our nitrogen products are becoming well
respected.
SUN 27(TM) is used to conserve nitrogen from attack by soil bacterial enzymes
while N Savr 30(TM) is directed toward nitrogen loss through leaching and
evaporation. Both our nitrogen products are equal to, or better than, the
competing products and we have very compelling pricing.
Watersavr(TM): We are continuing our efforts in the USA, Turkey, Africa, Chile,
Brazil, parts of East-Asia and Australia.
We like to illustrate the potential of WaterSavr(TM): using it on the Salton Sea
for 6 months a year would save 320,000 acre feet per year. This is more than 100
billion gallons. It's not just the water; WaterSavr(TM) can have huge effects on
city water budgets. Delivered water costs now exceed $1000 per acre foot in many
California cities and the total cost of saving an acre foot using WaterSavr(TM)
is less than $200. WaterSavr(TM) can reduce annual losses from reservoirs by up
to 2 feet per treated acre.
The City of San Diego has finished the extra research they decided to do after
our very successful trial together, which we reported earlier this year. The
results re-confirm that WaterSavr(TM) does not change water quality. This was
already known from research done by the South Nevada Water Authority and
published in the world renowned "AWWA Journal". Regrettably, several individuals
inside the San Diego water bureaucracy still refuse to issue the PO we were
promised last February. Every year that the City of San Diego does not use
Watersavr(TM) the City is wasting 12 - 14 million dollars of taxpayer funds. We
will continue to push these individuals to do what is right for the people who
pay their salaries.
Q4 and the start of 2018
TPA for agricultural use has peak uptake in Q1 but with significant sales in
fourth quarter for customers who have early buy programs. We expect Q4 increases
in uptake compared to the year earlier quarter and in Q1 2018 the growth is
expected to continue.
SUN 27(TM) and N Savr 30(TM), the nitrogen conservation products for
agriculture: There will be early buy uptake in this product line as well. The
amounts will be higher than in Q4 2016. Q1 2018 nitrogen product sales could
also increase in comparison with Q1 2107.
Growth in oilfield use of TPA driven by our worldwide sales efforts is likely.
2
Increased rig counts in America should lead to greater sales into the US
industry while oil price stability in the $55 per barrel range could result in
increased international sales as customers refocus on production growth.
WaterSavr(TM) had a $50,000 sale to Mauritius in Q1, 2017. The Brazil sale in Q2
was in the low six figures. An order has been received from Turkey and it will
ship as soon as payment is received. An initial contract is being negotiated in
Honduras for delivery late in the year or early in 2018.
We are still comfortable predicting that full year 2017 revenue will increase
significantly compared to 2016 once the discontinued Ecosavr(TM) operations are
accounted for. We also expect that profits and operating cash flow will continue
to increase but mention that the accounting effects of the fire will distort the
numbers. In 2018 we expect growth to continue in most quarters and for the year
overall. The usual warning applies - that we can't control customer behavior,
shipping dates, weather, crop pricing, oil platform maintenance and the other
variables of our business, so quarterly results will be unlikely to form a
straight line on a graph.
Highlights of the financial results:
Sales for the quarter increased 5% to $3.27 million, compared with $3.12 million
for Q3 2016. The result is a loss of $279 thousand or $0.2 per share in the 2017
period, compared to a gain of $86 thousand or $0.01 per share, in 2016. The
major factors that reduced profits were the accounting treatment of the fire
remediation costs and increases in raw material costs. Over several more
quarters the fire accounting will have unusual and unpredictable effects on our
financials. The amounts should be less and less over time. We are working to
increase our pricing to customers so that selling prices reflect the higher raw
material costs we must pay. This will proceed over the remainder of the year and
into 2018.
Working capital of $12.1 million is excellent, including $6.3 million in cash on
hand as well as a line of credit with Harris Bank of Chicago. We are confident
that we can execute our growth plans with our existing capital.
FSI provides a non-GAAP measure useful for judging year over year success.
"Operating cash flow" is arrived at by removing taxes, interest, depreciation,
option expenses and one-time items from the statement of operations.
For the nine months ending September 2017, operating cash flow was $1.86 million
or 16 cents per share compared to $2.84 million or 25 cents per share for the
same period in 2016. Detailed information on how to reconcile GAAP with
"Operating Cash Flow" numbers is included in our news release of November 14th.
The insurance recovery and site remediation costs from the Taber fire have had a
large effect on our results in 2017. Additional recoveries, purchase of a new
building, tax adjustments, depreciation on the new building and the amounts
received already will affect our GAAP financials until Q1 2019 - the period
3
allowed by Canadian tax law before a final tax occurs on any profits from an
insured event. It is highly probable that our deferred tax asset [see balance
sheet] will offset any tax owing on the insurance recovery. We think the GAAP
financials combined with the operating cash flow will give a somewhat clearer
view of our success until the effects of accounting for the insurance recovery
are over.
The text of this speech will be available on our website by Thursday, November
16th and email or fax copies can be requested from Jason Bloom at
Jason@flexiblesolutions.com.
Thank you, the floor is open for questions.