Flexible Solutions International Inc. (NYSE:FSI) reported a mixed performance in the first quarter of 2024 during its earnings call. The company experienced a decrease in sales, down to $9.2 million from $9.8 million in the same quarter the previous year.
Despite the drop in sales, FSI still managed to turn a profit, although lower than last year, with $457,000, or $0.04 per share, compared to $884,000, or $0.07 per share in Q1 2023. The company's CEO, Dan O'Brien, touched on various aspects of the business, including product lines, the impact of tariffs, and expectations for the rest of the year.
Key Takeaways
- FSI's NanoChem division (NCS) contributes approximately 70% of the company's revenue.
- NCS produces thermal poly-aspartic acid (TPA) and nitrogen conservation products SUN 27 and N Savr 30.
- The company's Food division has FDA certification and has commercialized one food product, which had weak sales in Q1.
- FSI expects purchase orders for at least two new products with significant revenue potential in 2024.
- The ENP division is anticipated to grow in the latter half of 2024, with sales mainly through the Florida LLC.
- Tariffs on raw materials imported from China since 2019 have negatively impacted the cost of goods and profits.
- Shipping prices remain stable but high, and raw material prices are increasing with inflation.
- FSI has raised prices to customers over the last six months and plans to continue if possible.
- The company has streamlined operations by closing the Naperville R&D facility.
- Long-term debt is being paid down according to loan terms, and working capital is adequate.
Company Outlook
- FSI expects growth in sales, cash flow, and profit for the remainder of 2024.
- The company is focusing on increasing sales in existing businesses and in the food industry.
- There is confidence in executing plans with existing capital and credit lines.
Bearish Highlights
- Sales for Q1 2024 decreased by 6% compared to Q1 2023.
- Profits and operating cash flow for Q1 2024 were lower than the same quarter in the previous year.
Bullish Highlights
- The Florida LLC was profitable in Q1 with better margins.
- The Food division's sales are expected to grow based on customer order schedules.
Misses
- The Food division's weak sales contributed to underwhelming results for the quarter.
- Rebates for tariffs are difficult to obtain, with over $1 million due back to FSI.
Q&A Highlights
- CEO Dan O'Brien is most excited about three upcoming products in the Food division, with margins in the 35%-45% range.
- There are no concerns regarding the collectability of the increased accounts receivable, attributed to the Florida LLC.
- FSI is determined to recover tariffs through legal means if necessary.
- The first food product is projected to see an increase in sales between $1 million and $2 million in gross billings.
FSI remains optimistic about its growth prospects for the remainder of the year, despite the challenges faced in the first quarter. The company is committed to overcoming the adverse effects of tariffs and shipping costs and is actively pursuing new opportunities in the food and nutraceutical market to bolster its financial performance.
InvestingPro Insights
Flexible Solutions International Inc. (FSI) has shown resilience in the face of challenging market conditions, as reflected in the company's ability to maintain profitability despite a sales dip in Q1 2024. The strategic moves by FSI, including raising prices and streamlining operations, appear aligned with its financial health and future outlook.
InvestingPro Data for FSI reveals a Price-to-Earnings (P/E) ratio of 7.06, indicating that the stock may be undervalued compared to earnings. Additionally, the company's Price/Book value stands at 0.69, suggesting that the market price is less than the company's book value, which could attract value investors. The Revenue for the last twelve months as of Q4 2023 is reported at $38.32 million USD, reflecting the company's financial scale during this period.
Two InvestingPro Tips that stand out for FSI include a strong free cash flow yield, which is a positive sign for investors looking for companies with solid financial health and the potential for dividend payments or reinvestment into the business. Furthermore, FSI's liquid assets exceed short-term obligations, indicating a robust short-term financial position that can reassure investors of the company's ability to meet its immediate liabilities.
For readers interested in a deeper analysis and more tips on FSI, InvestingPro offers additional insights. There are six more InvestingPro Tips available, which can provide a comprehensive understanding of the company's financial situation and investment potential. To access these tips and enhance your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
FSI's commitment to growth and financial stability, as indicated by these data points and tips, suggests a company that is strategically navigating its market and positioning itself for future success.
Full transcript - Flexible Solutions International (FSI) Q1 2024:
Operator: Good day, everyone, and welcome to today's Flexible Solutions International First Quarter 2024 Financials. At this time, all participants are in a listen-only mode. Later you have the opportunity to ask question during the question-and-answer session. [Operator Instructions] Please note, this call may be recorded. It is now my pleasure to turn the conference over to Mr. Dan O'Brien. Please go ahead.
Daniel O’Brien: Thanks, Natalie. Good morning, everyone. 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 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 2024. To start, I'd like to discuss our company condition and our product lines, along with what we think might occur in the remainder of 2024. I will comment on our financials afterwards. NanoChem division. NCS represents approximately 70% of FSI's revenue. 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. In 2022, NCS started food grade toll operations using the spray dryer we installed over the last several years. TPA is used in agriculture to significantly increase crop yield. It acts 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. Preventing scale keeps the oil from covering pipes from clogging and TPA is also sold as a biodegradable ingredient in cleaning products, and there's a water treatment chemical. In our Food division, a special version of TPA is sold as a liquid stability aid. Sun 27 and N Savr 30 are nitrogen conservation products. Nitrogen is a critical fertilizer that can be lost through bacterial breakdown, evaporation and soil runoff. SUN 27 is used to conserve nitrogen from attack by soil bacterial enzymes that cause evaporation, while N Savr 30 is effective at reducing nitrogen loss from leaching. Food products. Our Illinois plant is food grade qualified and we've received our FDA certification. We've commercialized one food product based on polyaspartates that was developed fully in-house. This product had weak sales in Q1, which contributed to the underwhelming results for the quarter. However, the customer has indicated their orders for the full year will substantially exceed full year 2023, so the weakness is probably only in a single quarter. We have a pipeline of additional products in development that has increased during the quarter. NCS now has five products, each with seven figure revenue potential at the final stages of purchase orders. We believe that purchase orders will be received for at least two of these products in 2024. ENP division. ENP represents most of our other revenue. ENP is focused on sales into the greenhouse, turf and golf markets, while NCS sells into row crop agriculture. We expect some ENP revenue growth in 2024 with the growth concentrated in Q3 and Q4. Our Florida LLC investment. The LLC was profitable in first quarter. We're pleased to see much better margins for this investment in Q1, and hope this will continue for the remainder of 2024. The LLC is focused on international sales into multiple countries, all of which face different issues and respond in various varied ways. We expect the sales of the LLC to grow again in 2024, leading to a larger profit on our investment. Agricultural products in the United States are facing resistance from growers to spending on inputs when crop prices are not increasing at the rate of inflation. We think the growth in 2024 is probable, but most of it will be international and recognized through sales to the Florida LLC. Oil, gas and industrial sales at TPA were stable in Q1, and this is likely to continue through 2024. Food division sales are sure to grow based on our customers' order schedule. They may grow even further if [indiscernible] are received for any of the products in development. Tariffs. Since 2019, several of our raw materials imported from China have included a 25% tariff. International customers are not charged the tariffs, because we've applied for the export rebates available to recover the tariffs. The tariffs are affecting our cost of goods, our cash flow and our profits negatively. Rebates are extremely difficult to obtain, even though we are entitled to them. We submitted our initial applications more than five years ago. The total dollar amount due back to us is well in excess of a $1 million and grows each quarter. We will persevere until we succeed in recovering our funds. Shipping and inventory. Shipping prices are stable, but higher than prior to COVID. Shipping times are reasonable on the routes we use. None of our products or raw materials ship through the Red Sea area. Raw material prices do not appear to be reverting to historic levels. Instead, they are stable and increasing with inflation. Constant price increases, even small inflation related ones along the customers, always take several months and is not always possible. We've raised prices to all customers over the last six months, and we're planning to continue this program if we can. We believe that the sum of the issues we faced last year, which resulted in lower revenue, lower cash flow and lower profits for the full year, have partly resolved. Progress is being made. We've streamlined operations by closing our Naperville R&D facility and moving all the work to our Peru Illinois building. The exit costs from this action were nearly all taken in Q1, so the benefits will become evident in Q2 and Q3. Some price increases have been possible, but not enough to recover margins yet. Several new opportunities have been found in the food and nutraceutical market and are proceeding toward revenue in the 2024 year. Therefore, we expect that growth will resume in sales, cash flow and profit for the rest of 2024. Highlights of the financial results. FSI and its subsidiaries will continue to examine all of our costs and economize where possible. Even more critical is increasing sales in our existing businesses and obtaining sales in the food industry to ensure our wage and other base costs are spread over more revenue dollars. We set the stage for this in Q1 and expect to show incremental success in all of these areas during the course of the 2024 year. Sales for the quarter, they decreased 6% to $9.2 million compared to $9.8 million in Q1 '23. Profits. Q1 2024 shows a profit of $457,000, or $0.04 a share compared to a profit of $884,000, or $0.07 a share in Q1 2023. Operating cash flow. This non-GAAP number is useful to show our progress with non-cash items removed for clarity. For Q1 2024, it was $1.34 million, or $0.11 a share, down from $1.73 million, or $0.14 per share, in Q1 2023. Long-term debt. We continue to paydown our long-term debt according to the terms of the loans. Additional factory space in Illinois. In the second quarter 2023, we invested to acquire 80% of an LLC called 317 Mendota. That in turn purchased a large building on 37 acres of land in Mendota, Illinois. We've determined that 240,000 square feet is available for our use or for rental. The ENP division has moved all operations to 60,000 square feet of this building and the remaining 180,000 square feet will be rented when suitable tenants are found. Working capital. It's adequate for all our purposes. We've got lines of credit with Stock Yards Bank for the ENP and NCS subsidiaries. We're confident that we can execute our plans with our existing capital. The text of this speech will be available as an 8K filing on www.sec.gov by Friday May 17. Email or fax copies can be requested from Jason Bloom at Jason@flexiblesolutions.com. Thank you. The floor is open for questions. And Natalie, will you take care of the details of how to do that? Thank you.
Operator: Thank you. [Operator Instructions] Our first question comes from Tim Clarkson with Van Clemens. Please go ahead. We lost him. [Operator Instructions] And here you go, Tim Clarkson with Van Clemens. Please go ahead.
Tim Clarkson: Hey, Dan, it looks like things are turning around. In terms of if you're going to rate the products in terms of potential, in terms of improving profitability, and you're going to rate them one, two, three, what would be the three products that you're most excited about right now?
DanielO’Brien: All three of them would be in the Food division. Let me see what I can disclose. First is the one that would guarantee, the liquid stability agent made from polyaspartates. It's first because we know we've got that additional revenue coming this year. Second would be a product in the field of personal nutritional health for a fairly large company. And third would be a second product for the same company, also in the field of personal nutritional health. And I guess by personal nutritional health, what I'm talking about is vitamins.
Tim Clarkson: Sure. Would you say these products have recently good margins?
DanielO’Brien: The margins are in the 35% to 45% range, so those are what I would call excellent for our industries.
Tim Clarkson: Sure, sure. Well, good. That's what I know and appreciate your response, Dan. Thank you. I'm done.
DanielO’Brien: Appreciate it, Tim.
Operator: Our next question comes from William Gregozeski with Greenridge Global. Please go ahead.
William Gregozeski: Hey, Dan. On the accounts receivable, those were up around $13 million and the Florida LLC is making up a good chunk of that. Is there any reason for that number rising and any concern about collectability?
DanielO’Brien: Morning, Bill. Collectability, no. We're very comfortable. You've also seen that the LLC is recovering the margins to the best of their ability. I haven't got a specific answer for you for the increase, but I suspect that there was a bolus of sales in the last month and that LLC has a 60-day terms. So, it wouldn't take very much to cross a quarter to distort it, or not, well, I don't know if you'd even call it distorted, but to change it upwards, which would then result in the next quarter it changing downwards. So, I don't see a reason for concern. I would call it just cutoff point noise.
William Gregozeski: Okay. On the tariff, I know we've been talking about that for a long time. Is there any sense of -- you guys -- when you might start getting something back or if you'll get something back?
DanielO’Brien: Well, the if answer is we intend, even if we have to use legal, even if we have to sue the federal government, we're going to get that money back, because it's just simply criminally unfair to offer a rebate program and then don't let people access it. In terms of when, as you know, it's been five years, we don't carry it on our books as anything. So, it's not distorting our financials, but it sure is irritating to people who become the work every day and do our job, kind of expect the federal government to do the same.
William Gregozeski: Okay. You mentioned the first food product that you have sales for now should be up substantially this year compared to last year. Can you give a sense for what those sales were last year, or what you're looking for this year?
DanielO’Brien: It's probably going to be an increase between $1 million and $2 million in gross billings.
William Gregozeski: Okay, great. And then with the other product, you talked about the five other [technical difficulty]
Operator: Mr. Gregozeski, did you -- we lose you.
DanielO’Brien: Yeah. It's not me. It's definitely Mr. Gregozeski.
Operator: All right. [Operator Instructions] It appears we may have just lost him, sir. [Operator Instructions] It appears that we have no further questions at this time, Mr. O’Brien.
End of Q&A:
Daniel O’Brien: Thank you, Natalie. Please close the meeting, and I will contact Mr. Gregozeski on that, because I know him personally. Thank you.
Operator: Thank you. This does conclude today's conference. Thank you for your participation. You may disconnect at any time.
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