Flexible Solutions International, Inc. (AMEX:FSI) Q1 2026 Earnings Call Transcript

Flexible Solutions International, Inc. (AMEX:FSI) Q1 2026 Earnings Call Transcript May 18, 2026

Operator: Good day, everyone, and welcome to today’s Flexible Solutions International’s First Quarter 2026 Financials Conference Call. [Operator Instructions] Please note this call is being recorded, and I will be standing by if you should need any assist. It is now my pleasure to turn the conference over to Dan O’Brien. Please go ahead, sir.

Daniel O’Brien: Thanks, Ross. Good morning. This is Dan O’Brien, CEO of Flexible Solutions. The safe harbor provision of the Private Securities Litigation Reform Act of 95 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 first quarter FSI conference call.

To begin, I’ll review our company condition and our product lines, along with what we think might occur in Q2 and Q3 2026. I’ll comment on our financials in the second part of the speech. The NanoChem division. NCS represents the majority of FSI’s revenue. In 2022, NCS started food-grade operations. By the end of 2026, we expect that NCS will be 100% focused on food-grade products. Growth in the NCS division will be in food and nutraceuticals only. The Panama division, this division makes thermal polyaspartic acid called TPA for short. It’s a biodegradable polymer with many valuable uses. Panama also manufactures SUN 27 and N Savr 30, which are used to reduce nitrogen fertilizer loss from soil. Panama is taking over production of all the legacy industrial and agricultural products historically made by NCS.

This is a step-by-step process that will be complete by the end of 2026. TPA is a biodegradable way of treating oilfield water for scale prevention. TPA is used in agriculture to significantly increase crop yield. It is also sold as a biodegradable ingredient in cleaning products and as a water treatment chemical. Nearly all of our product for international sales will be made in Panama using raw materials sourced without the U.S. tariffs. There will also be shipping advantages. The new plant is 30 minutes from the port, inbound raw material and outbound finished goods will not have to be shipped across the U.S. to and from Illinois for our international customers. Delivery times will be shortened by many days. Reduced shipping times and no exposure to U.S. tariffs on international sales could allow us to increase sales to existing customers and obtain new customers.

We’re already engaging with potential new customers. NCS Food Products, our Illinois plant is FDA and SQF certified. We’ve commercialized 2 food products. The first was our wine additive based on polyaspartates. In August 2025, we announced our second major food grade contract of 2025 and our third overall. As noted in the news release, it’s a 5-year contract with protection from tariffs and inflation. It has a minimum revenue of $6.5 million per year and a maximum if the customer requests it of greater than $25 million per year. The contract has reached full production. It’s running 24 hours per day, and it’s now our second food grade product after the wine prop. We’re reviewing methods of increasing production quickly if the customer requests it.

Production is utilizing the equipment that we’ve been buying and installing over the last 2 years, but had no customer for. Therefore, little CapEx will be needed to reach $13 million to $15 million per year in sales and mild CapEx in the $2 million to $3 million range to reach $25 million. In January 2025, we announced another larger food grade contract. Actual production at small volumes started several weeks ago and will be increased weekly until full production is achieved. Significant revenue from this contract may be visible in our Q2 financials and will increase rapidly in Q3 and Q4. Growing these 2 food contracts to the estimated maximum revenues — combined revenues of greater than $50 million per year is our critical goal for the next 4 to 6 quarters.

We hope to execute this to the customers’ absolute satisfaction and obtain all their business before taking on additional major projects. This doesn’t mean that we’re not looking for more customers. We’re already doing R&D work in certain areas. However, it does mean that several quarters are likely to elapse before other major customers are announced. We’d also like to be clear regarding margins in the Food division. In order to obtain such large contracts 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 profitable base in place. Our ENP division.

ENP represents most of our other revenue. ENP is focused on sales into the greenhouse, turf and golf markets. ENP grew in 2025 and growth is expected again in 2026. Q1 is the weakest quarter for this division, followed by Q2, and the growth is usually concentrated in the second half of the year. Agricultural products. In the U.S., they remain under extreme pressure. Crop prices are still not increasing at the rate of inflation and extreme uncertainty is present due to tariff charges, energy costs and fertilizer scarcity. Growers are facing a conflict between rising costs and low crop prices aggravated by political actions and war. In some cases, sales are lost for the whole season. As a result, we saw weakness in Q1 and expect 2026 to be another difficult year.

The Florida LLC investment. The LLC had a small loss in Q1 2026. The company is focused on international agriculture sales into multiple countries. It faces the same issues I noted regarding our internal agricultural sales. Tariffs. Well, the current tariff on all our imports of raw materials from China into the U.S. is between 15% and 58.5% depending on the material. We’re being careful not to import materials unless destined for U.S. customers who are guaranteed to purchase from us and are aware that the tariffs will be added to their invoices. Moving agriculture and polymer production to Panama has freed space at the Illinois plant, so that good grade production in the U.S. for U.S. customers can be optimized and expanded substantially. Shipping and inventory.

Shipping prices are not stable. Shipping times are longer than usual on the routes we use. These issues are caused by the Iran war and are expected to subside if the war does. The raw material prices are unstable and increasing to account for the oil prices caused by the Iran war. We have a significant inventory of most raw materials, but estimate that we will have to raise prices to our customers in third quarter unless there is a significant reduction in the price of oil that reduces our raw material costs. Highlights of the financial results. Sales for the quarter increased by 11% compared with Q1 2025, $8.3 million compared to $7.47 million. Profits 2026 has a loss of $241,000 or $0.02 a share compared to a loss of $278,000, also $0.02 a share in 2025.

Many costs incurred to prepare for the potential new revenue from the food grade contracts announced in January and August negatively affected 2025 profits because they were expensed as they occurred. Substantial costs for the Panama factory were also expensed quarter-by-quarter. This continued in Q1 2026 in Panama and for food products in Illinois, but at much lower levels. We anticipate some profits in Q2 2026, followed by rapidly increasing profits in the second half of the year. Operating cash flow. This non-GAAP number is useful to show our progress, especially with the noncash items removed for clarity. For Q1 2026, it was $575,000 or $0.05 a share, up from $480,000 or $0.04 a share in 2025. Cash flow has been impacted by the same costs as noted for profits and is expected to rebound in Q2 and for the remainder of 2026.

Long-term debt. We continue to pay down our long-term debt according to the terms of the loan. The loan we used to buy our ENP division was paid in full in June 2025, and our 3-year note for equipment was fully paid in December 2025. This has freed up over $2 million in cash flow per year for other purposes. Only one small term loan and the small mortgage on our Illinois factory remain. Working capital. It’s adequate for all our purposes. We’ve got lines of credit for the ENP and NCS 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 8-K filing on www.sec.gov by Tuesday, May 19, and e-mail copies can be requested from Jason Bloom, jason@flexiblesolutions.com.

Thank you. The floor is open for questions. And Ross, will you take it away, please?

Q&A Session

Operator: [Operator Instructions] And our first question comes from William Gregozeski, an investor.

William Gregozeski: A question on the Florida LLC. On the sale, the 10-Q made mention of the LLC making like a penalty payment on behalf of the buyer. Can you give an update on what’s going on with the rest of that equity?

Daniel O’Brien: That is a — it’s a question I don’t have a good answer for. We did receive the penalty payment. We are still waiting for the rest of the payments, and those payments are incurring an interest charge of 10% per year. And we are in steady negotiations with the buyer to find out what they plan to do next. And I think that’s as far as I can go at this point. And I’m sorry, I can’t give you better clarity.

William Gregozeski: Okay. With regards to the LLC itself, do we think there’s going to be any turnaround with their business? It’s been falling pretty steadily for like the last 4 years, and it looked like you had a pretty low sales to them in the first quarter. I mean, do you think there’s going to be a turnaround? Or is there an opportunity where you could look for a different international distributor?

Daniel O’Brien: Yes, it’s a little bit, again, the same thing. We’re being told one thing and they’re achieving something else. I believe that we have the opportunity to help them turn around, and we’d like to work with that first before we try to duplicate something. There are good people there, and — as I noted in the speech, they are facing headwinds, but I think they can do better, and we’re working to try and find ways to help them do better. So I think that’s about the best I can answer that question as well.

William Gregozeski: Okay. You mentioned on the call today that you’re doing some R&D work on food products. Is that for a specific client? And is that — would that be something where you’d get an R&D payment like you did in the second quarter last year? Or is this just something you’re working on internally?

Daniel O’Brien: It’s a little bit of both. We get people come to us by phone or Internet saying, “We have this wonderful idea we’d like and you guys appear to be able to manufacture it. ” When someone comes to us with that, we look at it, and we ask them point blank, “Guys, is this a multimillion dollar project? Or are you trying to get us to make samples so that you can see if everything works? ” If it’s the first and it’s a multimillion dollar project, we actually start trying to make it in our lab scale equipment. And there’s — I believe there’s one of those projects underway, and it’s of that size. But then we also have our own ideas, and those are — that’s what we fill up our lab people’s time when we don’t have a good target in the multimillion dollar range. So it’s a bit of both.

William Gregozeski: Okay. All right. And then you mentioned too that the cost to do Panama and the food contracts were decreasing in Q1. Is that kind of the difference we’re seeing in the fourth quarter SG&A versus the first quarter? And is Q1 more a range of which we should expect going forward for that?

Daniel O’Brien: It’s very explicitly that the cost of employees in Q4 who were being trained and we’re not producing salable product because they were in training and because product wasn’t running at full speed. In the January 2025 contract, all the people working on that contract are now actually working on product that gets sold. But in first quarter, for the — sorry — back me up, that was the August 2025 contract. Now for August 2025, all the employees are past training and producing revenue-producing product. However, in Q1, the January ’25 employee count is large, and those people are just learning their jobs. And of course, the production line only started a few weeks ago. So we had a large headcount plus anything that didn’t make it into CapEx. That was being dealt with from our income from other places.

And to answer your last question, I think every quarter is going to be sequentially better from now on because what I’m seeing from reports is that the January 2025 production line is making more product every week. And that’s the key here. All employees and all equipment needs to be making product at a profit on a daily, weekly and monthly basis as we school up to full speed.

Operator: [Operator Instructions] At this time, there appears to be no further questions. I’ll turn the call back over to Dan for — to close out the call.

Daniel O’Brien: Thanks, Ross. Well, thank you, everybody, for joining us today. It was only a month since the last call. So I guess that’s why there are fewer questions and that and Bill asking all the questions everybody else wanted to ask. I look forward to talking to you again in 3 months, and I’m going to keep working to make our company better. Take care, and goodbye.

Operator: Thank you. This does conclude today’s Flexible Solutions International’s First Quarter 2026 Financials Conference Call. Thank you for your participation. You may now disconnect.