Good day, everyone, and welcome to today's Flexible Solutions International first quarter 2023 financials conference call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star one on your touchtone phone. You may withdraw yourself from the queue by pressing star two. Please note, this call may be recorded. I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Dan O'Brien. Please go ahead.
Thanks, James. Good morning, everybody. I'm Dan O'Brien, CEO of Flexible Solutions. Safe harbor provision. Private Securities Litigation Reform Act of 1995.
Good day, everyone, and welcome to today's Flexible Solutions International first quarter 2023 financials conference call.
With the Securities and Exchange. Welcome to the FSI conference call for first quarter 2023. I'd like to speak first regarding our company condition and our product lines, along with what we think might occur in Q2 and Q3 2023. Afterward, I will comment on our financials. 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. NCS also manufactures SUN 27 and N Savr 30, which are used to reduce nitrogen fertilizer's loss from soil. In 2022, NCS started food grade toll production operations using the spray dryer that we installed over the last several years. TPA is used in agriculture to significantly increase crop yield.
It works by slowing crystal growth between fertilizer ions and other ions in the soil, resulting in the fertilizer remaining available longer for the plant to use. TPA is also a biodegradable way of treating oil field water to prevent pipes from plugging with mineral scale. TPA's effect is prevention of scale from minerals that are part of the water fraction of oil as it exits the rock formation. Preventing scale keeps the oil recovery pipes from clogging.
TPA is also sold as a biodegradable ingredient in cleaning products for certain food uses and as a water treatment chemical. SUN27 and N Savr 30, nitrogen conservation products. Nitrogen is a critical fertilizer that can be lost through bacterial breakdown, evaporation, and soil runoff. SUN27 is used to conserve nitrogen from attack by soil bacterial enzymes that cause evaporation. While N Savr 30 is effective at reducing nitrogen loss from leaching. Food products.
Our Illinois plant is food grade inspected and we've got our FDA number. We've commercialized one food grade product based on polyaspartates that was developed fully in-house. We have a pipeline of additional products in development that are either our IDs or our ideas, co-production of outside ideas, or a mixture where an outside idea is being optimized by our team. NCS will focus on food products equally with our other market verticals because we have determined that this is an area with large markets that we're skilled in servicing and where we can obtain good margins. The ENP division. ENP represents most of our other revenue. It's focused on sales into the greenhouse, turf, and golf markets as opposed to our NCS sales, which are into row crop agriculture. The opening of the economy after the pandemic has affected ENP sales into the home gardening market, especially home cannabis.
Still expect revenue growth in 2023 at close to historic rates, with the growth more likely in the second half of the year. Our Florida LLC investment, the LLC was profitable in 2022 as a whole and again in Q1. Company's focused on international sales into multiple countries, all of which face different issues and respond in varied ways. Revenue was very strong in 2022, we expect more top line growth in 2023. The LLC remains exposed to high costs of goods while experiencing difficulty passing all the costs to customers. Margins are compressed and earnings may not reach historical levels in the near term, although we do expect an improvement compared to 2022. Our sales to the LLC continue to grow, and we are able to retain a positive margin. Our mergers with Lygos did not proceed.
On April 18, 2022, FSI and Lygos announced their intent to merge subject to shareholder approval. Merger was not completed by the end date of the agreement, December 30, 2022, did not close. Strategic investment in Lygos. In December 2020, we invested $500,000 in Lygos in return for equity. We made a second investment in June 2021 for $500,000 and then again in equity. Lygos is using these investments towards development of a microbial route to aspartic acid using sugar as a feedstock. FSI will be the major user of aspartic acid derived this way and believes that sustainable aspartic acid will allow us to obtain large new customers and develop valuable new products that both biodegrade and come from sustainable sources. We remain optimistic that we can continue to work with Lygos in ways that don't involve merging.
FSI is dedicated to the goal of sustainability while finding a route to the goal that is profitable for us, for our suppliers, and for Lygos. Q2 and Q3. Agricultural products were not as strong in Q1 2023 as they were in Q1 2022. We feel that some customers who normally buy in Q1 are waiting until Q2 to make orders. We still feel the agricultural sales for the first half will exceed the same period in 2020. Oil, gas, and industrial sales at TPA had increased sales throughout 2022. This was driven by shortfalls of competing products and high oil prices. Sales are expected to remain steady in 2023, but with the possibility of temporary reductions if customers reduce inventory or do maintenance that was delayed in past years. Tariffs.
Since 2019, several of our raw materials imported from China have included a 25% tariff. International customers are not charged the tariffs because we've applied for the export rebates available to recover tariffs. Tariffs are affecting our cost of goods, our cash flow, and our profits negatively. Debates take 10 years to arrive. We submitted our initial applications 4 and a half years ago. Total dollar amount due back to us is well in excess of $1 million. We intend to persevere until we succeed in recovering our funds. Shipping and inventory. Ocean shipping from Asia to the U.S. and ocean shipments from the U.S. to international ports are back to pre-COVID speed, but they've been settled at higher prices. Land transport inside the U.S. is continuing to stabilize.
Coped with shipping issues last year by ordering far ahead and carrying additional inventory, resulting in some costs that we were unable to pass on to our customers. In 2023, we hope to begin reducing our inventory to a more normal level and replacing expensive raw materials with less expensive ones. As this proceeds, margins may stabilize at slightly higher levels. Raw material prices do not appear to be reverting to historic levels. Instead, they seem to be stabilizing at a new base level that's also experiencing inflation. Passing price increases, even small inflation-related ones, along to customers can take several months. Not always possible, it may result in constrained margins throughout the year.
We still believe that revenue, operating cash flow, and profit can grow strongly in 2023. Inflationary forces may keep us in a position where selling prices lag cost increases some of the time. The financial results. We're reasonably pleased with the results for Q1 2023. Year-over-year revenue and operating cash flow were down. Possible that certain customers had inventory to work through. It's very likely that some agricultural sales were delayed into Q2. Profits were negatively affected by product mix, cost of goods, and reduced sales volume. We estimate that year-over-year growth in revenue, cash flow, and profits will continue in 2023, with the increases likely to incur Q3 and Q4. Sales for the quarter decreased 9% to $9.85 million, compared with $10.78 million in 2022.
Profits: $884,000, or $0.07 a share, compared to $1.53 million, or $0.12 a share in Q1 2022. Operating cash flow. This non-GAAP number is useful to show our progress. Got the non-cash items removed for clarity. In Q1 2023, it was $1.73 million or $0.14 a share, down from $2.47 million or $0.20 a share in the 2022 period. Long-term debt. We're continuing to pay down our long-term debt according to the terms of the loan. We've consolidated all of our debt for E&P and NCS with the Stock Yards Bank. It's resulted in increased lines of credit with lower interest rates and reduced interest rates on our long-term debt.
At the same time, we bought all the units we did not already own in ENP Peru Investments LLC and guaranteed the mortgage held by the LLC. The LLC owns five acres and 60,000 sq ft building on the southwest corner of our Peru, Illinois factory. This action returns full ownership of the 20 acre, original 20-acre parcel and 120,000 sq ft of buildings to FSI with a mortgage at favorable terms. Working capital. Adequate for all our purposes. It's increasing continuously as we book re-retain profit from sales. Our lines of credit with Stock Yards Bank for our subsidiaries are sufficient, and we're confident that we can execute our plans with our existing capital. Special dividend. Company declared a special dividend on April 13th, which will be paid today. Shareholders of record, April 28th.
We are pleased and proud to be able to return capital to shareholders this way. This is, of course, a special dividend. Will not be repeated until management and the board are sure that paying another special dividend can be done without hurting the forward progress of FSI. Text of this speech will be available as an 8-K filing on www.sec.gov by Wednesday, May 17th and email or fax copies can be requested from Jason Bloom, jason@flexiblesolutions.com. Thank you. The floor is open for questions. James, can you set everybody up, please?
Certainly. At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and 1 to ask a question. I will pause for a moment to allow questions to queue. We'll take our first question today from William Gregozeski with Greenwich Global.
Hey, Dan. Couple of questions for you. In regards to the Florida LLC, on the last conference call, we talked about... You mentioned you were unsure if there was anything pulled from the first quarter, and the first quarter this year was higher than the year ago. Is it safe to assume then that maybe nothing was pulled or we can still expect, you know, good year-over-year growth from the Florida LLC?
Good morning, Bill. Yes, I think I can confirm that Q1 did not pull from Q4 and didn't pull backwards from Q1. When you see those numbers are accurate for the quarter, and they probably, unless something changes, indicate a good year for the LLC.
You mentioned that a couple of times the ag sales being down in the first quarter, but should still be up in the first half. There was a large customer you had about $3 million in sales first quarter last year is $1 million and a half this year. Is that what that was related to or what you're talking about?
That's a part of it. I mean, it's not going to be any specific customer. What we're noticing in the ag industry in North America, it's not as true internationally, where they have to account for shipping times. In North America, we're seeing a tentativeness at the farmer level that translates to a tentativeness at the distributor level, which translates to attempting to make just-in-time purchases from the manufacturer level, which is us. We've talked to several of our distributors and even a couple of competitors, and everybody's getting the same feeling. It's not that people aren't going to buy, it's just they're waiting until the last minute.
Okay. All right. Then on the food business, you mentioned kind of the, you know, some self-developed products, some customer-demanded products. For the self-developed products what's the plan to market those if they're not being, you know, driven by a customer?
There are our ideas, but we aren't taking them to commercialization unless one of our distribution connections has shown an immediate and strong interest. We're not going to market ourselves. I think everybody who's followed us for a while has noticed that we're not great retail marketing or salespeople and that we're our skill set really involves solving problems and allowing distribution to get it into the marketplace. I think what you're going to see is that if a an idea of ours has volume opportunities and an interested distributor, it's gonna go forward. Otherwise, it's gonna go on the shelf and we'll find another one that does have volume and an interested distributor.
Okay. Okay. Are you able to say, you know, how many products you have in the pipeline that are demanded by customers just to get an idea of, you know, how often you're gonna be rolling out a product?
I think we, I think we've got, we've got five at an as-advanced level right now. They're in the food category, which means that they're not going to be immediate sales. They'll take several quarters as we go through proof. Then an approval process by distribution. That will be followed by a medium-size first order and then upward motion from there. These are things that are still going to start to come true in the second half of the year and accelerate through the future. One of the things that I'm gonna try and get across every time people ask questions today is that we're really positioning ourselves this year for our next growth cycle of several years.
We're doing it, you know, yeah nobody's asked the question yet. I'm sure it's coming about our wages and administrative salaries and so forth. We've got additional capacity in our plant and additional capacity amongst our human resources that we haven't had in the past. It's costing us more money today, but it's going to allow us to earn more money in the future.
Okay. Last question I had was you guys put more money into Trio. Should we look at that more as just a parking spot for cash? Is there nothing, you know, no equipment or anything you can spend that money on right now for that, you know, future growth?
Yeah, no, I think you should look at it as long-term parking, not short-term parking, because it is paying 8% guaranteed, and as much as 11.5% every year, because there's a bonus interest payment every three years. It's also highly tax-advantaged income. And I think, you know, I'm a little bit odd, but I, I do a little bit of pocket-to-pocket accounting. The income from our Trio investment is virtually equal to the cost of our executive who operates our Cayman subsidiary. I think you should think of it as long-term parking that guarantees we're going to have, we'll have covered our executive costs in the islands. Interesting question.
Okay.
Definitely, I'll let you know, the boards looked at this, $1 million is, or just under $1 million, that's enough to have into a single investment. We won't be buying any more Trio. If we need another parking spot, we'll be looking at a different building.
Okay. All right. Thanks, Dan.
Thanks, Bill.
Next, we'll hear from Tim Clarkson with Van Clemens.
Hey, Dan. another nice quarter. Obviously, there's fluctuations with sales and earnings. In terms of the big picture, do you see a change in perception of in agriculture with a more emphasis on products like yours that are green, that are helping the environment? I mean is there a shift towards, you know, people acknowledging that these products not only, you know, help grow more crops but are also are healthier for the land and so on?
I would have to say that that's an individual farmer by farmer lifestyle choice. It will probably have a lot to do with the age of the farmer and how much how much of the 1980s he had to endure, or she. I would say that younger farmers that are taking over from their parents are definitely far more interested in stewarding their land and having it there for their children and grandchildren. It's amazing what a decade or a decade and a half of decent corn and soybean prices will do for people's thoughts about the future.
Sure.
The older guys are just worried about next year.
Right. The other question, I noticed that you've done some insider selling on the - on your stock. I assume that's just a little bit of a concentration risk, and you're looking to diversify your own resources a little bit.
Yeah. It's even, it's even less onerous than that. It's - I'm expecting a personal tax hit towards the end of this year from my grateful government and I'm positioning to have the cash to pay the bill.
Oh, okay. All right. That's - w e don't want you going to jail, so that's a good thing. I guess.
If I go to jail, I can work all the time.
Yeah. Well, maybe. Depends which jail, I guess. Anyhow, I'm done. Thanks. Good quarter.
Thank you.
Once again, if you'd like to ask a question please press star and one on your touch tone phone. We'll pause for a moment. It appears we have no further questions at this time. I will now turn the program back over to Mr. O'Brien for any additional closing remarks.
Thanks, James. Well thanks, everybody. Appreciate you coming to listen today, look forward to talking with you again in about three months. We're gonna work hard. Hopefully have some good news for you. Take care. Bye now.
This does conclude today's program. Thank you for your participation. You may now disconnect.