Earnings call transcript: Flexible Solutions Q2 2025 beats EPS forecasts

Flexible Solutions International Inc. (FSI) reported its Q2 2025 earnings on August 14, surpassing EPS expectations significantly, with a reported EPS of 16 cents compared to a forecast of 7 cents. Revenue, however, fell slightly short of projections, coming in at $11.37 million against an expected $11.61 million. The company’s stock reacted negatively, declining 1.46% to $7.36 in pre-market trading, reflecting mixed investor sentiment. According to InvestingPro analysis, FSI appears overvalued at current levels, with technical indicators suggesting the stock is in overbought territory. The company’s market capitalization stands at approximately $91 million.

Key Takeaways

• EPS exceeded expectations by 128.57%, driven by unusual R&D revenue.
• Revenue missed forecasts by 2.07%, despite an 8% year-over-year increase.
• Stock price declined 1.46% in pre-market trading, signaling cautious investor reaction.
• New food-grade contracts could boost future revenue significantly.
• Strategic shift to Panama aims to mitigate tariff impacts on international sales.

Company Performance

Flexible Solutions reported a strong performance in Q2 2025, with sales increasing by 8% year-over-year to $11.37 million. The company’s profit rose to $2.03 million, or 16 cents per share, up from $1.29 million, or 10 cents per share, in Q2 2024. This growth was largely attributed to an unusual R&D revenue of $2.5 million, which significantly bolstered profits.

Financial Highlights

• Revenue: $11.37 million, up 8% from Q2 2024.
• Earnings per share: 16 cents, up from 10 cents in Q2 2024.
• Operating cash flow for the first half of 2025: $4.25 million, up from $3.85 million in 2024.

Earnings vs. Forecast

Flexible Solutions delivered an EPS of 16 cents, far exceeding the forecast of 7 cents, representing a surprise of 128.57%. The revenue of $11.37 million, however, fell short of the $11.61 million forecast, marking a negative surprise of 2.07%.

Market Reaction

Following the earnings release, Flexible Solutions’ stock fell 1.46% to $7.36 in pre-market trading. This decline reflects investor concerns about the revenue shortfall and potential challenges in the agricultural market. Despite the recent dip, the stock has delivered remarkable returns, with a year-to-date gain of 114% and a one-year return of 191.53%, according to InvestingPro data. The stock trades near its 52-week high of $7.80, with a P/E ratio of 38.88, suggesting premium valuations. For deeper insights into FSI’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

Looking ahead, Flexible Solutions is optimistic about its growth prospects. The company expects production at its new Panama facility to begin in Q3 2025, which should help mitigate tariff impacts and boost international sales. The company has secured two new food-grade contracts, expected to generate significant revenue by Q4 2025, with potential annual revenue between $25 million and $30 million in the next 4-6 quarters.

Executive Commentary

CEO Dan O’Brien emphasized the company’s role as a "solution provider," highlighting its commitment to finding innovative solutions for its clients. He also noted the strategic importance of the Panama facility, stating, "Nearly all of our products for international sale will be made in Panama using raw materials sourced without US tariffs."

Risks and Challenges

• Agricultural market pressures and stagnant crop prices could impact sales.
• Tariff changes introduce uncertainty in international markets.
• Execution risks associated with transitioning production to Panama.
• Potential for increased competition in the food-grade sector.
• Dependence on revenue from new contracts, which may not materialize as expected.

Q&A

During the Q&A session, analysts inquired about the company’s R&D strategy and capacity at the Illinois plant. Executives confirmed steady demand in the oil and gas market and discussed tariff mitigation strategies through the Panama facility.

Full transcript - Flexible Solutions International Inc (FSI) Q2 2025:

Dan O’Brien, CEO, Flexible Solutions International: Good day, everyone, and welcome to today’s Flexible Solutions International Second Quarter twenty twenty five Financial Conference Call. By pressing the star and one on your telephone keypad. Please note, this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Dan O’Brien. Please go ahead, sir.

Thanks, Paul. 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 involves 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 Q2 conference call. I’d like to discuss our company condition and our product lines first, along with what we think might occur in Q3 and Q4 twenty twenty five.

I’ll comment on our financials in the second part of the speech. NanoChem division, NCS, represents approximately 70% of FSI’s revenue. This division makes thermal polyaspartic acid called TPA for short, a biodegradable polymer with many valuable uses. NTS also manufactures Sun 27 and N Savr 30, which are used to reduce nitrogen fertilizer loss from soil. In 2022, NCS started food grade operations at the same plant.

TPA is used in agriculture to significantly increase crop yield. It acts by allowing the fertilizer to remain longer for the plants to use. TPA is a biodegradable way of treating oilfield water to prevent scale and keep oil recovery pipes from clogging. TPA is also sold as a biodegradable ingredient in cleaning products and as a water treatment chemical. In our food division, a special version of TPA is sold as a wine stability aid.

Sun 27 and N Savour 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 and evaporation, while N saver 30 is effective at reducing nitrogen loss from runoff. Food products. Our Illinois plant is FDA and SUF certified.

We’ve commercialized one food product, the wine additives based on polyaspartase that was developed fully in house. In January, we have announced a new food grade contract. In order to achieve the objectives of that contract, there are certain actions that must be completed. For example, we need to install new specialized equipment capable of manufacturing the product. In addition, we need to install a new clean room because our current clean rooms are not suitable for the processes.

There will be CapEx associated with our efforts to earn this business because our food and grade food grade improvements over the last two years did not anticipate this particular product category. We estimate additional CapEx of approximately $4,000,000 for equipment and plant improvements combined, and most of this CapEx has been deployed already and the remainder will be spent in Q3. We have substantial cash on hand in our U. S. Subsidiaries and access to an unused LLC.

There will be no equity financing needed. CapEx involving equipment and improvement requires lead time for delivery and installation time prior to testing, leading hopefully to purchase orders for production. These lead times are being reduced as much as we can control, and our estimate of the earliest that production could begin is Q4. After we have satisfied that we can manufacture the product at scale and assuming that we can still meet our customers’ pricing expectations, we then hope to begin receiving purchase orders. As such, we believe that revenue could begin in q four and could reach significant levels by the start of twenty twenty six.

This week, we announced our second major food grade contract, which is from the customer that we received the r and d revenue from in q two. As noted in the news release, it’s a five year contract with protection from tariffs and inflation, has a minimum revenue of 6,500,000.0 per year and a maximum if the customer requested of greater than 25,000,000 per year. Production will utilize equipment that we have been involved sorry, that we have been buying and installing over the last two years but had no customer for yet. Therefore, almost no CapEx will be needed to reach 13,000,000 to $15,000,000 per year in sales and mild CapEx in the 2,000,000 to $3,000,000 range to reach $25,000,000 and above. Production will begin in Q3 and revenue may be significant by Q4.

Earning these orders and hopefully growing them to the estimated maximum revenue of 30,000,000 and 25,000,000 per year is the critical goal for the next four to six quarters. We hope to execute this to both customers’ absolute satisfaction and obtain all their business before taking on additional major projects. This does not mean that we are not looking for more customers as we are already doing r and d work in certain areas. However, it does mean that several quarters are likely to elapse before other major customers are found. We would also like to be clear regarding margins in the food division.

In order to obtain such large contracts from a very low base and in order to negotiate tariff and inflation protection clauses, we have lower margins than we prefer. We hope to be in the 22 to 25% range before tax. Future customers will be selected in order to increase our average margins now that we have a base in place. E and P division. E and P represents most of our other revenue.

E and P is focused on sales into the greenhouse, turf, and golf markets. We expect growth to continue in 2025 with the growth already apparent in early q three. Florida LLC Investment. The LLC was profitable in q two. The company is focused on international agriculture sales into multiple countries.

Its management has advised us that they estimate a return to growth in 2025 in the second half of the year, and this should translate into increased revenue for FSI. Agricultural products in The US are under pressure. Crop prices are still not increasing at the rate of inflation, and extreme uncertainty is present due to tariff changes. Growers are facing a conflict between rising costs and low crop crop prices, aggravated by political actions. In some cases, failed, were lost for the whole season.

As a result, we saw weakness in q two, which we expect to continue in the second half. Tariffs. The current tariff on all our imports of raw materials from China into The US is between 3068% depending on the material. We’ll be careful not to import materials unless we are sure The U. S.

Customers are certain to purchase and are aware that increased tariffs will be added to their invoices once any of our remaining inventory is consumed. We have not managed our transition to Panama to perfection and have had to import some raw materials into The US in q three. Some of this tariff costs will be passed to customers, some will qualify for the rebate program, and some will reduce q three margins a small amount. Panama factory for international sales. We’re developing a duplicate agriculture and polymer facility in the country of Panama that will be capable of producing nearly all the products we sell to international customers.

We estimate that first production from this factory could begin in q three twenty twenty five. All the equipment has arrived. Raw material inventory is on hand, and installation is underway. CapEx and operational costs to develop the new plant have been funded by cash flow and retained earnings. There won’t be a need for debt or equity financing.

Once operational, nearly all of our products for international sale will be made in Panama using raw materials sourced without US tariffs. There will also be advantages related to shipping. The new plant is thirty minutes from the port. Inbound raw materials and outbound finished goods will not have to be shipped across The United States to and from Illinois. Delivery times will be shortened by many days.

Reduced shipping times and no exposure to US tariffs on international sales could allow us to increase sales to existing customers and obtain new customers over the next two years. Moving most agriculture and polymer production to Panama for a space at the Illinois plant so that the food grade production in The US can be optimized and expanded substantially as US customers are found. Panama will become a separate reporting division in our financials as soon as it becomes full operation. Shipping and inventory. Shipping prices are stable.

Shipping times are reasonable on the routes we use. No materials or finished goods transit to the Red Sea. And raw material prices are stable, but increasing slowly with inflation. Highlights of the financial results. Sales for the quarter were up 8% compared with 2024, 11,370,000.00 versus 10,530,000.00.

Profits. Q2 twenty twenty five recorded a profit of 2,030,000.00 or 16¢ per share compared to a gain of 1,290,000.00 or 10¢ per share in Q2 twenty four. We recorded unusual R and D revenue in the quarter of 2,500,000.0, which resulted in the exceptional profit. Our underlying business continued to see weakness caused by tariffs and general business uncertainty. Our agriculture sales have been reduced until the start of early buy season, which is now in q three and q four.

In some in addition, some costs incurred to prepare for the potential new revenue from the contract announced in January negatively affected q two profits because they are being expensed as they occur. Some costs for the Panama factory are also being expensed quarter by quarter. This will continue in Q three for Panama expenses and in Q three and Q four for food products. Thereafter, we expect profits to revert to past levels and increase as our revenue grows. Operating cash flow.

This non GAAP number is useful to show our progress, especially with noncash items removed for clarity. For first half twenty twenty five, it was 4,250,000.00 or $0.34 a share, up from 3,850,000.00 or $0.31 a share in ’twenty four. Long term debt. We continue to pay down our long term debt according to the terms of the loans. The loan that we used to buy our E and P division was paid in full on June 30.

Our three year note for equipment will be fully paid out in December 2025, so coming up quickly. This will free up over 2,000,000 in cash flow per year for other purposes. Our working capital is adequate for all our purposes. We have lines of credit with Stockyards Bank for the E and P and MTS subsidiaries. We’re confident that we can execute our plans with our existing capital and without resorting to any equity actions.

The text of this speech will be available as an eight k filing on www.sec.gov by Monday, August 18. Email copies can be requested from Jason Bloom at Jason@FlexibleSolutions.com. Thank you. The floor is open for questions. And, Paul, will you set that up for us, please?

At this time, we will open the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad, and you’ll be placed into the queue in the order received. You may remove yourself from the queue at any time by pressing pound and one. Once again, to ask a question, please press star And we’ll take our first question from Tim Clarkson of Van Clemens Capital.

Tim Clarkson, Analyst, Van Clemens Capital: Great results, great progress on the food. Just wanted to know what what do you think is the the real business magic behind getting these new food contracts?

Dan O’Brien, CEO, Flexible Solutions International: I think that that you should look at the second word in our corporate name, solutions. When people come to us, they often have unfinished not an unfinished product idea, but a but a not the ability to understand exactly how it should be made. And that’s where we do the r and d work that results in a solution that is economic and and functional. And we’ve been doing this pretty much since the beginning of the company thirty five years ago. We we are a solution provider.

We don’t always know the solution, but we’re willing to go out and look for it. And I think you can see that perfectly evidenced in first receiving an r and d payment and then receiving a contract based on the r and d work we did. We may not always have to do that, and sometimes people will come to us and we can do it immediately. But that is the advantage we provide over many other companies.

Tim Clarkson, Analyst, Van Clemens Capital: Okay. So you’re you’re really good listeners in trying to understand what the problem is and then have good engineers that can help solve those problems.

Dan O’Brien, CEO, Flexible Solutions International: I would I would agree with that synopsis. Yep.

Tim Clarkson, Analyst, Van Clemens Capital: Good. Good. In in terms of now, I haven’t looked at the queue yet in terms of how this how much was the R and D contract? Was it 2 and a half million?

Dan O’Brien, CEO, Flexible Solutions International: Did that Correct. The

Tim Clarkson, Analyst, Van Clemens Capital: the Yeah. Now how did that play out? Did you treat that as a revenue item, or is that just an extraordinary income item? Or how how does that fit into the into the into the financials?

Dan O’Brien, CEO, Flexible Solutions International: We we chose to have it as a second line in in our our revenue. So we have our regular sales revenue followed by a second line r and d revenue because we feel it’s likely that this is this type of payment is is possible or even probable intermittently over the next one to two years. So it it isn’t really other income, or it could be classified that way. It’s hard it was hard to make a choice, but we think that by over and over emphasizing that this is intermittent normal behavior for us, that we are telling a clear story. If it went into other income, it might be a little less clear.

I but that’s how that’s how we’ve done it. And then your follow-up question is probably, well, what what’s the percentage of the of the income that’s that this special payment is responsible for, and it’s about 14¢ out of the 16¢. So I think that that tells you that it it was a weak quarter in general sales and a strong quarter in intermittent sales and with a very strong follow-up by getting the contract that will last for several years.

Tim Clarkson, Analyst, Van Clemens Capital: Sure. So on these food contracts, talked about a 25% gross margin. What do you think that will net out to? Is that is that about five or percent net or 10% net or you’re not sure yet?

Dan O’Brien, CEO, Flexible Solutions International: I believe that my words were net before taxes. So it’s not a gross margin. It’s a net margin before tax. And that particular plant faces 31% income tax. And then it gets a little more complicated because a recent work in Washington has reinstated the 100% CapEx write offs for equipment.

And we’re not quite sure how much of our costs in this year are going to be eligible for that. And, of course, by next year, any any small CapEx that we’re doing is going to reduce our income tax load. I think that one I I would just use the 31%, and everything else will be a bonus.

Tim Clarkson, Analyst, Van Clemens Capital: Great. Great. Well, good. It sounds like you finally have looks like a longer term solution to all this tariff stuff.

Dan O’Brien, CEO, Flexible Solutions International: Yes. I think we’ve got I think we’ve got the solution now. We’ve gotta execute.

Tim Clarkson, Analyst, Van Clemens Capital: Right. Right. Well, great work. I’m very excited. So I’ll get off the queue.

Dan O’Brien, CEO, Flexible Solutions International: Thanks. Thanks, Tim. Thank you. If there are any additional questions, please press star and one on your phone now. And we’ll take our next question from William Rogowski of Greenridge Global.

Hey, Dan. I have a I have a few questions for you. On this r and d contract, were there really any expenses related to this that seem like it pretty much all just dropped down to the bottom? The expenses were incurred in general operations over the past eighteen months. So we’ve been incurring expenses in advance of the income, and, of course, the income came all at once.

So the answer is yes. Everything dropped to the bottom line in the quarter, but our previous quarters were damaged by not having any revenue from the work we do. We do have a full r and d lab with a couple of PhDs and several helpers. Plus, I I’ve gotta be honest, every single person in the company is expected to pay attention to what’s going on and propose solutions if they see one. So we will probably continue showing low lowish r and d on our on our line items, but, basically, we’re doing r and d every time we walk in the door.

Okay. On the food on the two food contracts you have, assuming they’re ramped up, you know, to the full amount, is that does that take up all the space in Illinois, or do you have to add space? Or where where are you capacity wise if those are both fully ramped up, assuming all the international TPA business is going to Panama? Yep. Good question, actually.

We we believe that that we will still have substantial space in our buildings. We may be a little bit short of clean room for additional customers if if they appear, But clean room, additions are a four to six month, project. And, of course, we haven’t even seen how much more efficient we can get. So if I if I had to take a rough guess, we won’t have to build any more space until we’ve more than doubled our current maximum, which I’ve quoted as 55,000,000. Okay.

Alright. Great. On the existing business, it sounds like E and P is picking back up, but egg is going to be weaker for the the rest of the year. Is that accurate? It’s an accurate guess.

E and P is definitely picking up because I’ve seen the I’ve seen the July numbers. Agriculture is a is a way worse to try and predict, especially American agriculture because I think you’re most of us are aware that some major soybean contracts were canceled by China and the business went to Brazil. And there’s a bunch of that thing. That’s the that’s the one that made the news, but there’s just general weakness in the in the field, unintended. And predictions are gonna be difficult, so we’re predicting it to be weak because we’re pretty sure it won’t be strong.

Okay. And then oil and gas, is that picking back up, or how how is that looking? Very steady. The the orders are coming in steadily. It doesn’t appear as though there are any disruptions in the marketplace.

But oil and gas, which when you first started knowing about us, was our primary product. It’s now well below all of our agriculture, and it’s similar to our our wine products. I’m not gonna give you specific numbers, but those two products, the the food grade product for wine and our annual oil industry are are similar products. Okay. Okay.

And speaking about the wine product, is that since that’s an international product, is that moving down to Panama as well, or is that staying in Illinois with the other food products? It will have to stay in Illinois with the other food products for now because it needs to be made in the food grade plant. And Panama is not food grade, and we’re not sure if or when we will do that upgrade. Okay. And then on the Florida LLC, are they buying from anyone else besides FSI?

It just seems like from what your sales are to them and their revenue and margins, their their margins should be higher if it’s just you guys. We have a contract that says if we can supply, they must buy it from us. If we cannot supply for some reason, they can buy it from someone else. So at this point, we have never turned down a PO, so we are supplying all of their business. Okay.

Alright. Great great news on the food stuff, Dan. It’s it’s pretty amazing. Thanks, Bill. You have a good day.

Thanks. Bye. Thank you. And it appears we have no further questions in the queue at this time. I’ll turn the call back over to our presenters for any closing remarks.

Thanks, Paul. Everybody, thanks for joining us today. I’ll be reporting back to you again in three months, and please, everybody, a good long weekend or a good weekend. Take care. Bye.

Thank you. This does conclude today’s Flexible Solutions International second quarter twenty twenty five financial conference call. Thank you for your participation. You may disconnect at any time.

Tim Clarkson, Analyst, Van Clemens Capital: The host has ended this call. Goodbye.

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