2018 FY 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 full year 2018.

Before concentrating on our financials, I’d like to speak about our product lines and what we think might occur over the next several quarters.


Insurance compensation from the fire has been received in full, but the accounting and tax effects of the payments will continue to distort and complicate our financials for two or three more quarters.


Our 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™ 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 slowing crystal growth between fertilizer ions and other ions in the soil resulting in the fertilizer remaining available longer for the plants to use. The attraction between the TPA and the fertilizer ions also retains the nutrients closer to the plant roots. Keeping fertilizer more easily available for crops to use, results in better yield with the same level of fertilization.

TPA in agriculture has a strong economic value 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. For example, a summer 2018 trial on strawberries done by the University of California at Davis resulted in a 15% increase in berries along with increased quality. The use of $40 worth of TPA yielded several hundred dollars in additional gross profit per acre.

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 and N Savr 30 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 and sales continue to grow. They utilize much more environmentally friendly solvents than some of the competing products.

SUN 27™ is used to conserve nitrogen from attack by soil bacterial enzymes while N Savr 30 is directed toward nitrogen loss through leaching and evaporation. Each of our nitrogen products are equal to, or better than, the competing products.

Watersavr™: Spring is starting in most of the areas we are trying to sell into. News regarding Watersavr™ trials and sales will be released if and when it occurs.

Delivered wholesale water costs now exceed $1200 per acre foot in many California cities while the total cost of saving an acre foot using WaterSavr™ is less than $200. WaterSavr™ can reduce annual losses from reservoirs by up to 2 feet per treated acre. A municipality that pays $1200 – $2400 per acre foot for water and does not use WaterSavr™ is wasting significant tax revenue - about $12 million a year for San Diego - regardless of the drought conditions in any particular year.



Full year 2018 and the first half of 2019

TPA, SUN 27™ and N Savr 30™ for agricultural use have peak uptake in Q1 and Q2.  First half 2018 results were strong as reported. Q3 was weaker because the crops had received most of their 2018 nutrition. In Q4, agriculture product sales strengthened to service early buy and winter crop programs as expected. In first half 2019, we will show significant improvements over the year earlier periods.

Oil, gas and industrial sales of TPA were not as strong in Q3 2018 as they were in the same period of 2017. We continue working to change this and saw some improvement in 4th quarter 2018. The recovery of sales into this market vertical is expected to continue throughout 2019.

Effect of the ENP acquisition: This synergistic acquisition added more than$1.5 million in consolidated revenue to FSI for Q4 2018 and contributed to EBITDA immediately. In 2019, we expect that ENP will provide more than $8.0 million in consolidated revenue and significant positive cash flow.

Effect of the LLC investment announced in January: This investment will generate quarterly cash flow and profits starting in Q1 2019. The company we invested in will also order substantially more product from us in 2019 than in 2018 which will further increase revenue and profitability. 

Full year 2019 revenue will increase very strongly compared to 2018 driven by; historic operations, the ENP acquisition and the January LLC investment. We expect that profits and cash flow will increase very significantly along with the increases in top line revenue. Our regular 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. However, we do expect the slope of the graph to be up sharply.

Tariffs: Since Sept 30th, all raw materials imported from China have included a 10% additional tariff. US customers have received price increases from us now that this inventory is being used. International customers are not charged the tariff because we are applying for the export rebates available to recover the tariffs.

To hedge against the chance of even higher tariffs, and to service the increased production expected in 2019, we have increased inventory substantially. 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 can take many months and the total dollar amount due back to us will become significant later in the year. The rebates will increase profitability and cash flow while decreasing cost of goods for the future quarters in which the rebates are received.

Highlights of the financial results:

Sales for the year increased 15% to $17.83 million,compared with $15.49 million for FY 2017. The result is a gain of $2.49 million or 21 cents per share in the 2018 period, compared to a gain of $1.75 million or 15 cents per share, in 2017.

Working capital is adequate for all our purposes and is expected to increase rapidly during the year as our revenue grows. 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 ENP acquisition was funded with a loan from BMO Harris plus a convertible note to the seller and did not reduce our cash position.

The LLC investment in January was made with cash on hand.

The insurance recovery and site remediation costs from the Taber fire had a large effect on our results in 2017 and 2018. The final cash recovery in April 2018, any tax adjustments and the amounts received already will affect our GAAP financials until at least Q2 this year – the period allowed by Canadian tax law before a final tax occurs on any profits from an insured event.

It is highly probable that the deferred tax asset shown on our balance sheet will offset any tax owing on the insurance recovery.

The text of this speech will be available on our website by Wednesday, April 3rd: email or fax copies can be requested from Jason Bloom at Jason@flexiblesolutions.com.

Thank you, the floor is open for questions.