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    FSI
    Earnings call· Jun 2026(Q2 FY26)

    FLEXIBLE SOLUTIONS INTERNATIONAL Q2 FY26 earnings call FSI

    Aug 17, 2026 Source

    Executive summary

    Flexible Solutions International Q2 FY26 — Food Contract Ramp-Up Drives Expected Q3/Q4 Rebound Amidst Ag Headwinds

    Flexible Solutions International is undergoing a strategic transition, with its NanoChem division shifting entirely to food-grade products by year-end 2026. While Q2 FY26 saw a net loss due to significant ramp-up costs for new food contracts and labor training, management anticipates a return to profitability in Q3, driven by increasing revenue from these contracts and a rebound in the Panama division. The company also expects to recover $5M-$7M in annual revenue from regained agricultural product rights, though the broader agricultural market remains challenging.

    Highlights

    4

    • Two major food-grade contracts are ramping up, with significant revenue expected in Q3 and rapidly increasing in Q4.

    • Panama division production increased in Q2 and is expected to be a strong contributor to revenue and profits in Q3 and thereafter.

    • Regained perpetual exclusive rights to four agricultural products in Central/South America/Caribbean, with an expected annual revenue recovery of $5M-$7M over the next 12 months.

    • Adequate working capital and credit lines are in place, with no plans for equity actions.

    Concerns

    5

    • Recorded a net loss of $1.91 million or $0.15 per share in Q2 FY26, compared to a gain of $2.03 million or $0.16 per share in Q2 FY25.

    • Sales decreased by 14% to $7.60 million in Q2 FY26 compared to $8.87 million in Q2 FY25, though recurring revenue was higher year-over-year excluding an irregular R&D payment.

    • Lower gross margins of 22-25% before tax on large food contracts due to negotiation for tariff and inflation protection clauses.

    • The agricultural products market in the United States remains under extreme pressure, leading to weakness in Q2 and an expected difficult 2026.

    • Unstable shipping prices, longer shipping times due to the Iran war, and increasing raw material prices are impacting costs.

    Guidance & targets

    8
    CategoryTargetConfidence
    NCS Division Focus
    100% focused on food-grade products
    high materiality
    High
    Food Contract Maximum Annual Revenue
    greater than $50 million per year
    high materiality
    High
    Panama Division Contribution
    strong contributor to revenue and profits
    medium materiality
    High
    Agricultural Products Market Outlook
    another difficult year
    medium materiality
    Medium
    Company Profitability
    return to profitability in Q3, followed by rapidly increasing profits in Q4
    high materiality
    High
    Customer Pricing
    raise prices to our customers
    medium materiality
    Medium
    Florida LLC Annual Revenue Recovery
    $5 million and $7 million a year
    medium materiality
    High
    Wine Additive Product Line Maximum Annual Revenue
    around $3 million to $4 million a year
    low materiality
    Medium

    Operational metrics

    14
    Sales growth
    -14%YoY
    Q2 FY26

    Sales decreased compared to Q2 2025.

    Irregular R&D revenue
    $2.5M
    Q2 FY25

    Revenue from R&D activity that did not recur in 2026.

    Recurring revenue growth
    HigherYoY
    Q2 FY26

    Recurring revenue was higher year-over-year when excluding the $2.5M irregular R&D revenue from Q2 2025.

    Net loss
    $1.91M
    Q2 FY26

    Loss recorded for the quarter.

    EPS
    -$0.15
    Q2 FY26

    Earnings per share for the quarter.

    Net income
    $2.03M
    Q2 FY25

    Gain recorded in the prior year period.

    EPS
    $0.16
    Q2 FY25

    Earnings per share for the prior year period.

    Food division gross margin
    22-25%
    ongoing

    Target margin range for large food contracts, lower due to tariff and inflation protection clauses.

    Food division net margin
    15-17%
    ongoing

    Target margin range for large food contracts.

    China import tariff range
    15-58%
    current

    Current tariff on raw materials imported from China into the U.S., depending on the material.

    Florida LLC annual revenue recovery expectation
    $5M-$7M
    next 12 months

    Expected revenue recovery after regaining exclusive rights to agricultural products from Florida LLC.

    Inventory increase
    $4M
    Q2 FY26

    Build-up of inventory in Q2, tied to new foodservice deals and Panama operations.

    Receivables cleared
    $9M
    Q2 FY26

    Amount of receivables cleared in the second quarter.

    Wine additive contract gross margin
    25-26%
    ongoing

    Expected margin for the wine additive product line, which has lower volume.

    Deals & partnerships

    4
    [Unnamed Customer]5-year contract for food-grade productsminimum $6.5 million per year5 years

    Announced in August 2025, this contract has reached full production and is being optimized for profitability.

    [Unnamed Customer]Largest food-grade contract

    Announced in January 2025, this is the company's largest food-grade contract.

    [Unnamed Acquirer]Sale of 30.1% equity in Florida LLC$2 million and five annual payments of $800,000

    In August 2024, the company sold 30.1% of the equity in Florida LLC. The acquirer was unable to fund the annual payments.

    Florida LLCRegained perpetual exclusive rights to four agricultural products and IPperpetual

    As a result of the acquirer's failure to fund payments, the company was granted exclusive rights to products and IP in Central America, South America, and the Caribbean.

    Risks & headwinds

    5
    Lower margins on new food contractsongoing

    22-25% gross margins before tax, 15-17% net margins after tax

    Mitigation: Negotiated tariff and inflation protection clauses; future customers will be selected to increase average margins.

    Weakness in agricultural products market2026

    Q2 FY26 weakness, 2026 expected to be another difficult year

    Mitigation: Focus on regaining lost sales from Florida LLC, expecting $5M-$7M annual recovery; Panama division taking over legacy ag products.

    Unstable shipping and raw material costsQ3 and Q4 FY26

    Shipping prices not stable, longer times; raw material prices increasing due to oil prices

    Mitigation: Significant inventory of most raw materials; anticipate raising prices to customers in Q3 or Q4 unless oil prices reduce costs.

    Tariffs on imports from Chinacurrent

    15-58% tariff on raw materials

    Mitigation: Negotiated tariff protection clauses in new food contracts.

    Scale-up costs and labor efficiency for new contractsQ2 FY26, improving in Q3/Q4

    Negatively affected Q2 profits, $1.91 million loss

    Mitigation: Efficiency improving daily as staff training progresses; anticipating return to profitability in Q3 and rapidly increasing profits in Q4.

    What to watch in Q3 FY26

    5

    Revenue from largest food-grade contract

    Q3 FY26
    CurrentVolume production started very late in Q2 FY26, increasing weekly
    TargetSignificant revenue visible in Q3 FY26, increasing rapidly in Q4 FY26

    Why it matters

    This contract is expected to be a major driver of revenue and profitability for the company's strategic shift to food-grade products.

    Significant revenue from this contract will be visible in our Q3 financials and will increase rapidly in Q4.

    Q&A highlights

    8

    Is the historically higher inventory level on the 10-Q connected to higher raw material costs?

    Yes, the company has been intentionally building inventory, especially in Panama, when raw material prices were low. They also engage in cyclical inventory control for key ingredients like aspartic acid, buying in fall and winter when prices are lower.

    “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.”

    asked by Alan Markham · answered by Daniel O’Brien

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Shift to Food-Grade Products

    Flexible Solutions International's NanoChem (NCS) division is undergoing a strategic transition, aiming to be 100% focused on food-grade products by the end of 2026. This shift involves concentrating growth in food and nutraceuticals, leveraging the Illinois plant's FDA and SQF certifications. The company has already commercialized two food products, including a wine additive and two major food-grade contracts announced in 2025, marking a significant pivot for the division.

    02

    Food Contract Ramp-Up and Profitability Optimization

    The two largest food-grade contracts, announced in August 2025 and January 2025, are in various stages of ramp-up. The August 2025 contract has reached full production and is being optimized for profitability, while the January 2025 contract began volume production late in Q2 and is expected to contribute significantly to Q3 and Q4 financials. The scale-up process, particularly the training of new staff for 24/7 operations, has negatively impacted Q2 profits, but efficiency is improving daily.

    03

    Panama Division Expansion and Rebound

    The Panama division, a second major revenue source, is taking over the production of legacy industrial and agricultural products from NCS, a process slated for completion by the end of 2026. Despite poor performance from a Florida LLC customer and weak agricultural sales impacting Q2, Panama's production increased. Q3 is already showing a significant rebound due to direct sales to former Florida LLC customers and orders from legacy NanoChem customers, with expectations for strong revenue and profit contributions going forward⏳.

    04

    Agricultural Market Headwinds and Florida LLC Recovery

    The US agricultural sector continues to face extreme pressure from low crop prices, rising costs, tariffs, energy costs, and fertilizer scarcity, leading to a weak Q2 for the ENP division and an expected difficult 2026 overall for agricultural products. However, the company has regained perpetual exclusive rights to four agricultural products and their intellectual property in Central and South America and the Caribbean, following the failure of an acquirer to make payments. This recovery is anticipated to generate $5M-$7M in annual revenue over the next 12 months.

    05

    Cost and Supply Chain Pressures

    Flexible Solutions International is navigating significant cost and supply chain challenges🌐. Tariffs on raw material imports from China range from 15% to 58%, while the Iran war is causing unstable shipping prices, longer shipping times, and increasing raw material costs due to higher oil prices. The company has built up inventory to mitigate some of these impacts but anticipates needing to raise prices to customers in Q3 or Q4 if oil prices do not significantly decrease.

    AI-generated summary of the company’s earnings call. Not investment advice.