Flexible Solutions Intl Q2 2026 Earnings Call: Complete Tr...

Flexible Solutions Intl (AMEX:FSI) held its second-quarter earnings conference call on Monday. Below is the complete transcript from the call.

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Access the full call at https://flexiblesolutions.com/investor-info/

Summary

Flexible Solutions International reported a 14% decrease in Q2 2026 sales compared to Q2 2025, attributed to the absence of $2.5 million irregular revenue from R&D activities that occurred in 2025.

The company faced a loss of $1.91 million in Q2 2026, down from a profit of $2.03 million in the same period last year, due to costs from scaling up food-grade contracts and Panama factory operations.

The NanoChem Division is shifting focus to food-grade products, with two major food contracts expected to bring significant revenue in Q3 and Q4 2026.

The Panama Division is expected to increase revenue by selling directly to Florida LLC customers and legacy NanoChem customers, benefiting from reduced shipping times and tariff exposure.

EMP Division experienced weak Q2 due to agricultural market pressures but anticipates a rebound in Q3, though challenges persist due to tariff changes and energy costs.

The company expects shipping and raw material cost instability due to geopolitical tensions, potentially leading to price increases in Q3 or Q4.

Flexible Solutions expects a return to profitability in Q3 2026, with further profit increases in Q4, as major contracts reach full production and efficiency improves.

Management highlighted efforts to manage inventory strategically to mitigate raw material cost fluctuations and improve operational efficiency.

Full Transcript

OPERATOR

Good day, everyone, and welcome to the Flexible Solutions International second quarter 2026 conference call. At this time all participants are in a listen-only mode. Later we'll conduct a question-and-answer session. You may register to ask a question at any time by pressing star one. Please note this call is being recorded, and I'll be standing by for assistance. Now I'll turn the call over to your host, Dan O'Brien. Please go ahead.

Dan O'Brien, CEO

Thank you, Ellis. Good morning. I'm Dan O'Brien, CEO of Flexible Solutions Intl. 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, 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 second quarter 2026. I will start by reviewing our company condition and our product lines, along with what we think may occur in Q3 and Q4 2026. I'll comment on our financials in the second part of the speech. NanoChem Division (NCS): It's one of the three major revenue sources for FSI.

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 Illinois plant is FDA and SQF certified, and we have commercialized two food products. The first was a 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 releases, it's a five-year contract with protections from tariffs and inflation.

It has a minimum revenue of 6.5 million per year. This contract has reached full production and is being optimized to ensure that it's profitable. In January 2025, we announced our largest food-grade contract. Volume production started very late in Q2 and will be increased weekly until full production is achieved. Significant revenue from this contract will be visible in our Q3 financials and will increase rapidly in Q4. Growing these two food contracts to the estimated maximum revenues of greater than 50 million per year is our critical goal for the next four to six quarters.

We hope to execute this to the customer's absolute satisfaction and obtain all their business before taking on additional major projects. This does not 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 would 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 base in place. The Panama Division: This division, our second major revenue source, makes thermal polyaspartic acid, called TPA for short, a biodegradable polymer with many valuable uses. Panama also manufactures Sun 27 and N-Save 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 used in agriculture to significantly increase crop yield. TPA is a biodegradable way of treating oilfield water for scale prevention. It's sold as a biodegradable ingredient in cleaning products and as a water treatment chemical. In Q2, Panama production increased. However, the poor performance by the Florida LLC customer and poor agriculture sales impacted revenue. Q3 has been much better as a result of selling direct to the Florida LLC customers and orders from legacy NanoChem customers.

We expect Panama to be a strong contributor to revenue and profits in Q3 and thereafter. Our Panama factory results in reduced shipping times and no exposure to US tariffs on international sales, which could allow us to increase sales to existing customers and obtain new customers. The EMP Division: EMP is our third major source of revenue, and EMP is focused on sales into the greenhouse, turf, and golf markets. EMP grew in 2025; growth is expected again in 2026.

Q2 is a weak quarter and it was very weak this year. Q3 is already showing a significant rebound. Agricultural products in the United States remain under extreme pressure. Crop prices are still not increasing at the rate of inflation, and extreme uncertainty is present due to tariff changes, 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, and as a result we saw weakness in Q2 and expect 2026 to be another difficult year.

The Florida LLC investment: In August 2024, the company sold 30.1% of the equity in the Florida LLC to an acquirer for 2 million and five annual payments of 800,000. The acquirer was unable to fund the annual payments. As a result, the company has been granted the perpetual exclusive rights to four agricultural products and the IP of these products in the exclusive territory. The territory is defined as south of the Mexico–US border, including all of Central America, South America, and the Caribbean.

We've been making these products for these countries for a decade and believe that now that we have the sales rights for them, lost sales can be recovered and the historic revenue we saw from the Florida LLC investment can be realized again. Full revenue recovery will not be immediate, but we've made progress already. This revenue will be evident in Q3. Tariffs: The current tariff on all of our imports of raw materials from China into the US is between 15% and 58%, depending on the material.

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 they're expected to subside if the war does. 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 we anticipate that we will have to raise prices to our customers in the third or fourth quarter unless there is a significant reduction in the price of oil that reduces our raw material costs.

The highlights of the financial results: Sales for the quarter decreased by 14% compared to Q2 2025: 7.60 million versus 8.87 million. The 2025 quarter included 2.5 million of irregular revenue from R&D activity that did not recur in 2026. With this removed, recurring revenue was higher year over year. Profits: 2026 recorded a loss of 1.91 million, or $0.15 per share, compared to a gain of 2.03 million, or $0.16 a share, in the 2025 period. Costs incurred in scaling up the food-grade contracts announced in January and August of 2025 negatively affected Q2 profits because they are expensed as they occur.

Scale-up costs for the Panama factory are also expensed quarter by quarter. This continued in Q2 2026 in Panama and for food products in Illinois at lower levels, but without sufficient revenue to avoid the losses. We anticipate a return to profitability in Q3, followed by rapidly increasing profits in Q4. Long-term debt: We continue to pay down our long-term debt according to the terms of the loans. We have one small term loan and a small mortgage on our Illinois factory remaining.

Our working capital is adequate for all our purposes. We have lines of credit with Stock Yards Bank for EMP and the NCS subsidiaries. We are 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, August 18th, and email copies can be requested from Jason Bloom, [email protected]. Thank you. The floor is open for questions.

And Elvis, will you put all that together for us, please?

OPERATOR

Certainly, Dan. If you'd like to ask a question, please press star one on your phone now and you'll be queued in order. Again, star one for a question, and we'll pause briefly to form our queue. First we have Alan Markham of Van Clemens Wealth Management. Please go ahead.

Alan Markham, Analyst at Van Clemens Wealth Management

Hi Dan, thanks for that info. Can you elaborate a little bit more? You're mentioning the higher raw material cost that I believe led to the larger than expected inventories. I believe that was what was also listed on the 10-Q, that inventories were historically higher than past. And can I make that connection? Does that make sense?

Dan O'Brien, CEO

Yes. We've been banking inventory rather than money because there were low prices last fall for certain of our products, and we took advantage of that, especially in Panama. We will probably try and achieve that again this fall. One of our primary products—and Alan, this is your first time asking questions, and welcome—one of our primary ingredients is aspartic acid, and we buy large, large numbers of tons per year. Aspartic acid is rare in the summer and the spring because it gets used for aspartame, which is still the sweetener, the cheap sweetener of choice for non-calorie sweeteners in the world outside of Europe and America.

So we try to never buy aspartic acid in the summer or the spring and to refill our coffers dramatically in the fall and winter. So that's one of our cyclical inventory control activities that I can point out. We do the same thing with several other products.

Alan Markham, Analyst at Van Clemens Wealth Management

Interesting. All right. Yeah, thanks for sharing a little bit more color on that.

OPERATOR

Our next question comes from William Gregoryzewski of Green Ridge Global.

William Gregoryzewski, Analyst at Green Ridge Global

Hey Dan, on the August 2025 food contract, am I correct in reading your customer list that the sales were down in the second quarter, and is there a reason for that, or should we just expect that to ramp back up going forward?

Dan O'Brien, CEO

For the August 2025 quarter? No. If I remember my speech correctly, that project has reached full capacity, and we are optimizing it so that it's profitable. What I'd like to share there is that we have been training large numbers of human beings to operate 24/7, four shifts, and the people do not manage to make the most per hour in the early stages of their training. And this training process for both the August and the January contracts is the primary reason for the losses in Illinois.

We just simply aren't efficient yet. And we are getting more efficient by the day. But, you know, it's not an easy situation to go from 15 people in Illinois to 100 people. And it's going to cost money. And some of the people aren't as good as Mace said they were and have to be replaced. So that's what's going on there, Bill.

William Gregoryzewski, Analyst at Green Ridge Global

Okay, so the revenue should be more stabilized on that contract going forward.

Dan O'Brien, CEO

I believe it will be. And that the January one is going to continue to increase.

William Gregoryzewski, Analyst at Green Ridge Global

There was like 9 million of receivables that were cleared in the second quarter. Is that tied to anything specific, or I guess what was the reason for the big decline in receivables?

Dan O'Brien, CEO

That will be written in the Q under that. I don't have the Q open in front of me, Bill.

William Gregoryzewski, Analyst at Green Ridge Global

Okay. And then the last question I had was the $2.5 million in R&D fees last year that was paid by a customer. That's not one of—that's not the January or August customers?

Dan O'Brien, CEO

That was paid by the August customer. And in the event that we reach certain milestones, there are other R&D fees available. We're not going to share—well, did we have to share the contract? If we had to share the contract, it's on sec.gov, but there is the possibility of receiving across the next year or a couple of years up to another 3 million on that particular R&D project. We don't have any clarity about if or when. But it—so we can't call it recurring revenue, but it definitely is revenue from work product, which is why it was shown the way it was last year.

And of course, the R&D work we did has led to the January contract being—sorry, the August contract being functional. So we just have to see whether we reach the milestones.

William Gregoryzewski, Analyst at Green Ridge Global

Okay. All right. Thanks, Dan.

Dan O'Brien, CEO

Thank you, Bill.

OPERATOR

Next we have Tim Clarkson of Van Clemens Wealth Management.