Margins Improve In Q4.

FSI reported fourth quarter results with Revenue of $9.4 million, a sharp decline from the year ago period due to weaker sales to its Ag customers, which includes the Florida LLC. However, gross margins of 29.1% were much better than anticipated due to better pricing on its materials and price increases on its products. SG&A was lower than expected, at $1.4 million, due in part to the cancellation of 660,000 options that were held by CEO Dan O’Brien; we would expect new options to be reissued at some point in the future. As has become customary for FSI, the Company reported a credit for income taxes in the quarter, of $1.0 million, nearly all of which is noncash accounting and part of the reason it also includes its more accurate cash flow figures. Net Income for the quarter was $1.8 million, or $0.14 per share. On an EBITDA basis, FSI booked $1.6 million, beating our estimate of $1.2 million.

Operating Expense Reductions.

The Company recently made a few changes that cut its expenses, including shutting down its Naperville, IL facility last month. The R&D that was done here has been relocated to its Peru, IL facility, and will result in a savings of $70,000 in annual lease expense, as well as bring all staff together in Peru. CEO Dan O’Brien also relocated to the Cayman Islands and requested his salary be reduced from $750,000 per year to $600,000 per year, which was granted by the Board.

Model Update.

Corn has remained roughly flat this year, but it appears Ag growth is still expected from the Florida LLC. Revenue from the food product segment appears to be growing and should continue to ramp over time. As a result, we have slightly increased our Revenue estimate for the year. This was more than offset on the bottom line by a decline in our Net Income estimate for the Florida LLC, which had Net Profit well below our estimate for the second quarter in a row. We also introduced 2025 estimates, which call for Revenue of $47.7 million and Diluted EPS of $0.39. We note that any significant uptake in food product orders could require an upward revision in these estimates.

Maintaining Rating & Raising Target.

Despite a tough domestic Ag market and relatively stagnant oilfield market, the Company is seeing growth internationally and in its new food segment. We expect management will maintain tight cost controls and resume its double digit growth pace this year and beyond. With continued optimism, we are reiterating our Buy rating on FSI and raising our target price from $4.00 to $5.00. Our target price is based on a mix of an EV/EBITDA multiple of approximately 8 times our forward twelve months EBITDA estimate of $7.9 million and a P/E multiple of 16 times our forward twelve month diluted EPS estimate of $0.30.