Flexible Solutions International Inc. (FSI)

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Flexible Solutions International, Inc. (FSI)

Q42012 Earnings Call

April 2, 2013 11:00 am ET


Daniel O'Brien - President, Chief Executive Officer, Director


John Nobile - Taglich Brothers Securities

William Gregozeski - Mont Blanc Capital

Gary Schwab - Valley Forge Capital Management



Welcome to the Flexible Solutions full-year 2012 financials on the April 2, 2013. Throughout today's 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 your host, Dan O'Brien. Please go ahead, sir.

Daniel O'Brien

Thank you, Danny. Good morning. This is Dan O'Brien, the CEO. 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 2012. I would like to review what we have accomplished in the last year and our estimates looking forward. Then move to speaking about the financials.

2012 was a good year for FSI and I am extremely proud of how hard each worked to supply increased volume to more customers with no additional personnel. The addition of several chemical and biological research staff will accelerate our new product development and open new market opportunities for polyaspartate industry. Our dedication to lean operations, low leverage and sales in multiple market verticals has been maintained.

Our significant achievements in 2012 include growth of 6% year-over-year. Another year of record sales, $16.4 million $0.9 million higher than 2011, even with headwinds such as the difficult economy in Europe and a major drought in the United States. Growth was recorded in all market verticals, except cleaning products with the strongest growth by percentage being in agriculture, once again.

The Alberta sugar to aspartic acid factory completed a full year of operations. We note that this does not mean that production has had added any specific level yet. Our Alberta employees are increasing operations at the best rate possible but we repeat that we will not meet production figures available in the foreseeable future and this is for competitive reasons.

Regarding the biomass factory in Alberta, this plant is designed to supply our Chicago operations with most of the aspartic acid they use for making polyaspartic acid. By using sugar in Alberta, we delink our raw materials for oil which is our current source, shorten our supply online by several weeks and thousands of miles, and dramatically improve the sustainable content of our finished products. Production from sugar will result in reduced cost to goods sold and the opportunity to gain customers who insist on renewable-based materials.

The Alberta plant is one of the parts of optimum success for Flexible Solutions, even though the company can be very successful regardless. It plays a supporting role to the NanoChem division by providing backward integration and simplification of our supply chain and by reducing the number of external profit margins that NCS must pay between the base carbon source and finished aspartic acid ready to be polymerized in Chicago.

The NanoChem division, this division makes polyaspartic acid, TPA, a biodegradable protein with many valuable uses. It now represents 95% of revenue and is the sales and profit driver of our company. TPA is used in agriculture to increase crop yield. The chemical mechanism is the ability of TPA to maintain crystal embryos of fertilizer salts in their embryonic form in the soil for several months. This has the effect of keeping fertilizer easier for plants to absorb because the plant expends less energy getting its nutrients, it has more energy available to produce valuable crops. In North America alone, the wholesale market for TPA is over $2 billion a year and most crops are able to use it profitably.

2012 was another good year for fertilizers and additives due to high crop prices. The market vertical saw a continued growth. One of our signed in late 2009 has grown faster than any group we have ever worked with. They built on their excellence in 2011 performance and delivered good growth for TPA in agriculture in 2012. However the drought in North America played a part in the overall reduction in year-over-year revenue growth. Agricultural sales growth was partially limited by the drought in Q4.

TPA is a biodegradable way of treating oilfield water to prevent pipes from plugging with mineral scale. Our sales in to this market are strong and oil companies in the Nordic countries use TPA as part of environmental regulation. In 2012, oilfield TPA sales increased and they are expected to increase again in 2013. We are experiencing interest from forward-looking oil producing countries other than the Scandinavian ones and have reasonable expectations of gaining new customers over the next several quarters.

There is continuing research on the concept of using TPA as part of part of tide oil and gas fracturing liquids. Should this continue to progress from concept to use, TPA would be part of the fracing fluid and intended to prevent scale for destroying the permeability of the rock pores. Rock \pores reduce well production. TPA may have added value compared to existing fluid components due its biodegradability. It does not need to be removed when cleaning up the used fracing water.

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