Flexible Solutions International Inc (FSI) Q1 2021 Earnings Call Transcript

Good day everyone and welcome to today’s First Quarter 2021 Financial Results Conference. At this time, all participants are in a listen-only mode. Later you will have an opportunity to ask questions during the question-and-answer session. Please note this call may be recorded and I will be standing by if you need any assistance. It is now my pleasure to turn today’s program over to Dan O’Brien.

Thank you, Mallory. 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 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.

We will take our first question from Greg Hillman.

Can you comment on the international distribution of your nitrogen stabilizer product, if Florida LLC was able to sign up some large distributors, and how market recognition of that product is progressing in Europe?

Good morning, Greg. Yes, sorry, the management of our LLC investment has been successful in finding new distributors. They are, I believe, in over 30 countries now. The products are well-received, but as is usual in the agriculture industry, you start small, you get a little bit bigger the next year, and then the second year with the new distributor, that's when you see the significant growth, if it's going to come. In most cases, I would say that our distribution to new rather than the existing strong distributors is in year one or a bit, or let's call it season two, and I would expect the growth in the newest places to occur in 2022, rather than 2021. I would suggest that the LLC is expecting its growth this year, which is expected to come from small increments from new distribution and greater increments from existing distribution.

Okay. And, I had, Dan, another follow-up question on your bank lines. Could you just comment on your relationships with BMO Harris and also Midland State Bank in terms of the amount of the line and the covenants, in particular covenants that are restrictive for you to pay dividends?

Sure. Our business with BMO has been completed. The last action was that they were involved in the forgiveness of the PPP loan. We do all our banking with Midland State Bank. The total of the LLCs that we have outstanding, of course, is in the financial side, and I haven't memorized the number. But I believe it's in the 3.3 to 3.4 million range. Our long-term debt is also shown there. So, we're doing a good job of managing that. The covenants that prevent us from paying dividends at this point are, we need to request permission from Midland rather than being told that we absolutely may not, which was BMO's position. So, we are finding greater freedom there. On the other hand, we don't believe that we are financially ready after COVID, or even that COVID is truly over. So, I think we're still a while from resuming a dividend.

Okay. Thanks, Dan. I'll get back in queue.

I appreciate it, Greg.

Alright, it looks like we do have another question from Greg. Your line is open.

Yes, I might be one of the. Yes, a couple. I guess other questions about overall? Well, maybe you could talk about the United States a little bit in terms of on the ag side, both for your SUN 27 and N Savr 30? What kind of traction you're getting, because I remember you had like two bad years, like one year, I think in 2019, it was extremely wet. And that hurt? And then last year was kind of COVID. And when will things normalize in terms of United States sales for some of your ag-related products? And then also, how is the traction you're getting with the distributors for both the nitrogen stabilizer and the phosphate stabilizer products, the TPA products?

Okay, well, that's a pretty in-depth question, but we're good for it. On normal in agriculture, luckily, we're in the Q&A and not on my main stage. I'm not quite sure what normal is. Because this year prices have gone crazy. There's drought in Brazil that's driving prices and swine flu in China, those two things are driving corn and soybean prices into levels we haven't seen since 2012. Beans are above $14, corn is above $6. You can even lock in this year’s crop at about $575 for corn. This means that farmers are going to be extremely wealthy this fall. But it's a little bit imaginary for them this spring, because they don't know the size of their crop. I'm thinking, and what we're seeing is good pull-through on our products this year, because everyone is pretty sure they're going to be able to afford what they put down in their field to grow crops. This is going to have positive effects on both our nitrogen stabilization and our polyaspartic yield increase products. We're not quite sure how much of it will be seen in 2022, as farmers are more willing to spend because they actually have the good money in their bank accounts. So, I think we're going to see pretty decent returns this year and growth in those markets. But I think we're going to have to work very, very hard and make sure that we not only crystallize those permanently in 2022 but also add to them based on the success of this year.

And then finally, do you have any products you could get into, let's say, direct fertilizer product as opposed to a fertilizer product itself or some other important products that you could introduce over the next two years?

We have looked at a fertilizer product in conjunction with our LLC investment. We're going to need a third party in that one, and we are looking. One of the problems with fertilizer, Greg, is that our enhancements become 2% of the fertilizer, which means that you're 98% exposed to a commodity. In order to convert it into some of the new ideas we have, you have to actually buy that fertilizer and become exposed to that commodity at the price on the date you bought it. This means you have to put together a pretty complicated world where you've also pre-sold the finished enhanced product to someone, also at a set price, so that you don't run the risk of, say, urea dropping by 40 bucks a ton, which could wipe out your profit and put you in a loss position on 3,000 or 5,000 tons of urea. That's something we are not financially able to play in. If you haven't got the buy-in in a poker game, you probably should stay out. So, we've got some ideas and some technology that we don't have the right people backing us yet. We're looking hard, and we may get in the next year. It won't be this season.

And finally, Dan, have you seen anything on the regulatory front in terms of mandates for farmers or incentivizing farmers to have less runoff or eutrophication, and in terms of rates that would be favorable to the farmers using more TPA, for example?

We haven't seen any radically new legislation in the United States. There's a greater understanding that this could help. There is some movement in Europe; I believe Germany has legislation coming that will require all nitrogen to be protected from loss. One of the real problems, of course, with regulation and farming is, does it get enforced? So, we like seeing the regulation. We think it's good to have the regulations, but until there is widespread enforcement, it's not going to have an effect that forces farmers to use it. Definitely, we haven't seen any incentives to use these products at this time. The big incentive for the farmer is always, does it save me money or does it make me money? With TPA, it makes them money, and with our nitrogen conservation, it saves them money. As higher nitrogen prices go up, the more money it saves them.

Okay. That's great. Dan, thanks for your comments.

No problem, Greg.

It appears that we have no further questions at this time. I will now turn the program back over to you, Dan.

Thanks, Mallory. Well, everybody who joined us this morning, thank you very much. We'll talk again in three months and appreciate your time. Bye.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.