Flexible Solutions International Inc (FSI) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the second-quarter financials conference call on the 14th of August 2009. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

I will now hand the conference over to our host, Mr. Dan O'Brien. Please go ahead, sir.

Thank you, Danny. Good morning. I'm 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 various 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 second-quarter 2009. Before we go through the numbers, I'd like to speak about where we are on our major projects and what we see going forward.

The global economic slowdown continues, but now with green shoots, as the media informs us daily. This continues to affect FSI in each of its divisions and market segments. However, despite continued inventory reduction and more aggressive just-in-time ordering from our customers, we still managed strong revenue and positive operating cash flow in Q2.

Our cost of goods was properly rationalized to our selling prices for the quarter, and gross margins are back to historic norms.

Our sugar-to-aspartic acid plant in Alberta will begin operation in September. Aspartic acid from Taber, Alberta, will become part of the raw material stream in Illinois in October. Production from the Alberta plant will allow FSI to supply the only renewably based polyaspartic acid in the world.

One of the primary potential customers for this grade of material is in the dish and laundry detergent market. And one very large potential detergent customer has already received a hundredweight sample and will receive a metric ton sample in September.

The market opportunity for our product in detergent is estimated as greater than $350 million a year. Customers in the other market segments will receive samples after the detergent group has been serviced.

The plant remains on budget, and a grand opening ceremony will take place in Taber, Alberta, on September 18.

The NanoChem division now represents 90% of revenue for the Company and has become the main sales and profit driver and will do so for the next several years. This division makes polyaspartic acid, TPA, a biodegradable protein with many valuable uses. Along with detergents, already mentioned, TPA is used in agriculture to increase crop yield. In North America alone, the wholesale market is over $2 billion a year, and most crops are able to use TPA profitably.

We have made significant increases in our distributor roster and expect the new customers to drive strong growth over the next several years. As any of you who follow the agriculture and fertilizer markets know, the '09 sales season has not been a good one. Very disappointing, as farmers refuse to pay high prices for fertilizer when crop prices are not at peaks.

However, the current levels of fertilizer use are not sustainable without a major impact on crop yields, and we expect our partners to see increased demand in the second half of 2009 and on into 2010.

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 but can be subject to temporary reductions when production is cut back or when platforms are shut down for repairs. In some areas, including many Nordic countries and companies operating in the North Sea on the Nordic side, the use of TPA is mandated as part of environmental regulation.

Q3 and the rest of '09. We are continuing to be optimistic about the year. Several product lines have opportunity for major growth, and all but the swimming pool divisions are partly insulated from the recession. As predicted, swimming pool sales picked up in April, but they are still expected to be weak because consumers pick and choose how they will spend their disposable income. Several major pool companies have reported sales drops of 20%, and we have done much better than that.

Given the continued economic uncertainty surrounding most of our end markets, it's very difficult to predict our revenues with any accuracy. We have a number of new product initiatives that could drive revenue growth in 2009 and beyond. However, if our customers or their end customers continue to delay spending decisions, this could push the timing of the growth back into 2010.

What is important is that we can maintain profits and cash flow even during times of customer pullback, such as now; and we will be well positioned for strong increases in sales, cash flow, and profits when the customers return to the marketplace.

Our optimism is much more solid in the areas of operating cash flow and profit. Now that material cost versus selling price has been normalized, the Company expects to maintain strong positive cash flow in the operating manner and resume profitability once the Alberta plant begins operation.

When the Alberta plant is in operation, we obtain insulation from oil price gyrations and have the opportunity to gain several major new customers. This has been a cornerstone of our planning for several years, and it is about to comes to pass. I should mention how proud I am of our team, who have pioneered a new biological process and built a 5,000-tonne per year first in the world factory on budget.

Although the economy makes it difficult to predict revenue by quarter, we are confident that we will finish 2009 in strong condition and able to take advantage of the opportunities we find. And we are sure that we can maintain positive operating cash flow throughout the year.

Highlights of the financial results. Sales for the quarter decreased 22% to $2.27 million compared with $2.92 million in 2008. The result was a net loss of $295,000 or $0.02 per share in the 2009 period compared to a gain -- excuse me, gentlemen, I'm going to have to back up here. My news release and my speech do not coincide, so I will go to the news release, which is accurate.

Sales in the second quarter were down 22% to $2.27 million. The result was a net loss on GAAP of $215,000 or $0.02 a share compared to a loss of $346,000 -- or a gain of $346,000 and $0.02 a share in 2008.

The reduced sales and profit were a direct result of the economic climate change since last year. Our customers are carrying less inventory. Our average selling prices are lower as we pass on some of our lower input cost to our customers. And under these circumstances we believe the Company has done an excellent job limiting losses, moving projects forward to completion efficiently, and increasing our customer count.

Because of the outside effects of depreciation, stock option expenses, and one-time items on the financials of small companies, FSI also provides a non-GAAP measure, useful for judging year-over-year success. Operating cash flow is arrived at by removing depreciation, option expenses, and one-time items from the statement of operations. For first and second quarters combined, operating cash flow was -- here I've got $255,000 or $0.02 a share compared to $1.38 million or $0.10 a share in 2008.

We are pleased that even in these difficult times operating cash flow has stayed solidly positive. Detailed information on how to reconcile GAAP with non-GAAP numbers is included in our news release of May 14. Actually that would be May 13; sorry about that, gentlemen.

Finally, our other product lines. WaterSavr and swimming pools are being emphasized less than the NanoChem division, while maintaining the long-term opportunities and limiting cash and management costs. We are continuing our efforts in Australia, Turkey, Morocco, parts of the Far East, and California. Small sales are expected at intervals throughout the year.

Swimming pool products. Ecosavr and Heatsavr continue to gain customers. Lower energy prices and the recession make sales more difficult. However, we are increasing our advertising frequency and direct-to-dealer sales to ensure we maximize the available sales through to the end users.

We hope to announce a licensing deal for the BTI product in Q3. Slower than expected decision-making by the prospective licensee has delayed this contract. When completed, it will provide revenue, allow management to reduce the internal efforts on that product line, and redeploy executive time to areas in which we are far more expert.

The text of this speech will be available on our website by Monday, August 17, and e-mail copies can be requested from Jason Bloom at 1-800-661-3560, or by e-mail, Jason@FlexibleSolutions.com.

Thank you. The floor is now open for questions. Danny, will you take over?

(Operator Instructions) There do not appear to be any questions at this time, sir. Please continue with any points you wish to raise.

Thank you all for joining us on the call today. I look forward to speaking with you again in about three months. At that time the new factory will be open and the Company will be progressing towards being the cutting edge of polyaspartates in the world, with renewable raw materials that are unaffected by oil prices.

I really appreciate your time today and thank you very much. Goodbye.

Ladies and gentlemen, this concludes the second-quarter financials presentation. Thank you for your participation and you may now disconnect.