Flexible Solutions International outlines $25M annual food contract expansion as Panama plant nears Q3 launch

Earnings Call Insights: Flexible Solutions International (FSI) Q2 2025

MANAGEMENT VIEW

* CEO Daniel B. O’Brien highlighted the NanoChem division as representing approximately 70% of revenue, with thermal polyaspartic acid (TPA) used in agriculture, oilfield water treatment, cleaning products, and food applications. O’Brien noted, “This week, we announced our second major food grade contract, which is from the customer that we received the R&D revenue from in Q2. As noted in the news release, it's a 5-year contract with protection from tariffs and inflation, 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.”
* O’Brien stated that most CapEx related to a new food grade contract has already been deployed, with the remainder to be spent in Q3, totaling approximately $4 million. He added, “There will be no equity financing needed.”
* The Panama factory is on track for first production in Q3 2025, with all equipment delivered and installation underway. O’Brien emphasized, “Once operational, nearly all of our products for international sale will be made in Panama using raw materials sourced without U.S. tariffs.”
* The company recorded unusual R&D revenue of $2.5 million in the quarter, leading to an exceptional profit. O’Brien explained, “Our underlying business continued to see weakness caused by tariffs and general business uncertainty.”

OUTLOOK

* O’Brien indicated that production for the new food contract could begin in Q4, with revenue possibly reaching significant levels by the start of 2026. He emphasized, “Earning these orders and hopefully growing them to the estimated maximum revenue of $30 million and $25 million per year is the critical goal for the next 4 to 6 quarters.”
* The Panama plant is expected to become a separate reporting division once it is fully operational, supporting international sales growth and margin improvements through reduced tariffs and logistics costs.
* O’Brien stated, “We hope to execute this to both customers' absolute satisfaction and obtain all their business before taking on additional major projects.”

FINANCIAL RESULTS

* Sales for the quarter were reported at $11.37 million, up from $10.53 million in 2024.
* Q2 2025 profit was $2.03 million or $0.16 per share, compared to $1.29 million or $0.10 per share in Q2 2024.
* Operating cash flow for the first half of 2025 was $4.25 million or $0.34 a share, up from $3.85 million or $0.31 a share in 2024.
* The company paid off the loan used for acquiring the ENP division as of June 30, with a three-year equipment note to be fully paid by December 2025, freeing up over $2 million in annual cash flow.
* O’Brien noted, “Some costs for the Panama factory are also being expensed quarter-by-quarter. This will continue in Q3 for Panama expenses and in Q3 and Q4 for food products. Thereafter, we expect profits to revert to past levels and increases our revenue growth.”

Q&A

* Timothy Clarkson, Van Clemens: “What do you think is the real business magic behind getting these new food contracts?” O’Brien replied, “When people come to us, they often have...not the ability to understand exactly how it should be made. And that's where we do the R&D work that results in a solution that is economic and functional...We are a solution provider.”
* Clarkson: “How much was the R&D contract? Was it $2.5 million?” O’Brien: “Correct.” Clarkson: “Did you treat that as a revenue item?” O’Brien: “We chose to have it as a second line in our revenue...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.”
* William Gregozeski, Greenridge Global: “On these food contracts, does that take up all the space in Illinois?” O’Brien: “We believe that we will still have substantial space in our buildings. We may be a little bit short of clean room for additional customers if they appear. But clean room additions are a 4- to 6-month project.”
* Gregozeski: “ENP is picking back up, but ag is going to be weaker for the rest of the year. Is that accurate?” O’Brien: “It's an accurate guess. ENP is definitely picking up because I've seen the July numbers. Agriculture is way worse to try and predict...we're predicting it to be weak because we're pretty sure it won't be strong.”

SENTIMENT ANALYSIS

* Analysts expressed optimism regarding food contract wins and R&D capabilities, while seeking clarification on margin sustainability and plant capacity; the tone was positive, with questions focused on execution and scalability.
* Management maintained a confident but measured tone, emphasizing solution-driven growth and prudent capital management. O’Brien’s responses highlighted the company’s adaptability and readiness for expansion.
* Compared to the previous quarter, management’s tone shifted from cautious optimism—driven by future projections and resolving past challenges—to a more assertive confidence, especially surrounding new contracts and the Panama facility launch.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter featured the announcement of a second major food contract with a significant revenue range, while the previous quarter focused on the initial contract and preparatory CapEx.
* The Panama plant’s timeline advanced from equipment arrival and installation to anticipated Q3 operations.
* The new contract includes tariff and inflation protection, and the company now projects near-term revenue ramp-up, a shift from the prior quarter’s longer-term outlook.
* Analysts in both quarters concentrated on food contract execution, margin durability, and the impact of tariffs; management’s responses evolved from emphasizing risk mitigation to highlighting execution and growth.
* Key metrics improved, with a return to profitability and increased sales, compared to the loss and sales decline in Q1 2025.

RISKS AND CONCERNS

* O’Brien identified ongoing headwinds from U.S. agricultural market weakness and tariff-related uncertainty, stating, "Agricultural products in the U.S. are under pressure. Crop prices are still not increasing at the rate of inflation and extreme uncertainty is present due to tariff changes."
* The transition of agriculture and polymer production to Panama is underway, with some costs and margin pressure in Q3 due to continued U.S. raw material imports and associated tariffs. O’Brien said, “Some of these tariff costs will be passed to customers. Some will qualify for the rebate program and some will reduce Q3 margins a small amount.”
* Management reiterated that no equity financing is planned, and working capital and lines of credit are sufficient.

FINAL TAKEAWAY

Management’s focus is on scaling food contract revenue with new long-term agreements featuring tariff and inflation protection, while strategically launching the Panama facility to reduce cost pressures and support international growth. The company expects significant revenue contributions from food contracts as early as Q4, with operational efficiency gains from debt reduction and plant expansion positioning Flexible Solutions International for sustained growth and margin improvement into 2026.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/fsi/earnings/transcripts]

MORE ON FLEXIBLE SOLUTIONS INTERNATIONAL

* Flexible Solutions International, Inc. (FSI) Q2 2025 Earnings Call Transcript [https://seekingalpha.com/article/4814191-flexible-solutions-international-inc-fsi-q2-2025-earnings-call-transcript]
* FSI signs food grade contract with Illinois plant [https://seekingalpha.com/news/4483559-fsi-signs-food-grade-contract-with-illinois-plant]
* Comstock, United States Antimony among materials stocks to join Russell Microcap Index; Ur Energy to leave [https://seekingalpha.com/news/4453034-comstock-united-states-antimony-among-materials-stocks-to-join-russell-microcap-index-ur-energy-to-leave]
* Seeking Alpha’s Quant Rating on Flexible Solutions International [https://seekingalpha.com/symbol/FSI/ratings/quant-ratings]
* Historical earnings data for Flexible Solutions International [https://seekingalpha.com/symbol/FSI/earnings]