PFIE reports

LINDON, Utah, Nov. 11, 2014 (GLOBE NEWSWIRE) – Profire Energy, Inc. (Nasdaq:PFIE), a technology company which creates, installs and services burner management systems and other combustion technologies for the oil and gas industry, today reported financial results for its fiscal second quarter ended September 30, 2014. The Company intends to file its results on form 10-Q before market open on November 12, 2014.

Fiscal Q2 2015 Highlights vs. Same Year-ago Quarter

Total revenues increased 68% to record $15.7 million.
Gross profit up 54% to a record $8.5 million.
Net income of $2.1 million or $0.04 per diluted share.
Cash at quarter-end totaled $18.7 million following an equity raise for net proceeds of $16.4 million.
Expanded sales team during the quarter from 18 to 26 sales team members, and expanded service team from 20 to 28.
Extended product line with the new Profire Flare Stack Igniter and accelerated R&D investment for future products.
Completed expansion of Utah warehouse, increasing efficiency and scalability of product inventory and delivery.
Continued testing of a serviced-based, recurring revenue model.
Extended international distributor network by partnering with Unlimited Petroleum Consulting, Inc. (UPC Global), a worldwide supplier of oil and gas products and services.
Broadened sales strategy by hiring channel managers for corporate sales, OEMs and government entities.

Not bad I’d say. After hours only up 4.5% after being down 4.5% today. So back where it started.

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Profire announced great earnings tonight (in line with estimates). Results are below, followed by my conference call notes:

http://globenewswire.com/news-release/2014/11/11/682176/1010…

Company Raises Fiscal 2015 Guided Revenues to $57.0-$59.0 Million and Net Income to $8.0-$9.5 Million. . . .

- Total revenues increased 68% to record $15.7 million.
- Gross profit up 54% to a record $8.5 million.
- Net income of $2.1 million or $0.04 per diluted share.
- Cash at quarter-end totaled $18.7 million following an equity raise for net proceeds of $16.4 million.
- Expanded sales team during the quarter from 18 to 26 sales team members, and expanded service team from 20 to 28.
- Extended product line with the new Profire Flare Stack Igniter and accelerated R&D investment for future products.
- Completed expansion of Utah warehouse, increasing efficiency and scalability of product inventory and delivery.
- Continued testing of a serviced-based, recurring revenue model.
- Extended international distributor network by partnering with Unlimited Petroleum Consulting, Inc. (UPC Global), a worldwide supplier of oil and gas products and services.
- Broadened sales strategy by hiring channel managers for corporate sales, OEMs and government entities.

Fiscal Q2 2015 Financial Results

Total revenues in the fiscal second quarter of 2015 increased 68% to a record $15.7 million from $9.3 million in the same year-ago quarter. The increase was primarily due to improved sales execution and increased efficacy in a number of growing sales territories, including Texas, Colorado, Pennsylvania and Alberta, Canada. The increase was also partly driven by leveraging new service and sales personnel, as well as the expansion of existing sales and service territories.

Gross profit increased to a record $8.5 million or 54.4% of total revenues, compared to $5.6 million or 59.5% of total revenues in the year-ago quarter.

Total operating expenses increased to $5.3 million or 34% of total revenues from $2.4 million or 26% of total revenues in the same year-ago quarter. The increase in operating expenses was primarily due to the purchase of equipment to be used by the Company’s expanding service team, as well as the hiring of additional personnel—particularly in Utah, Texas, Pennsylvania and Alberta—to support long-term sales growth. The increase in total operating expenses was also driven by increased non-cash stock option expense, as well as increased research and development expense to support the introduction of the Company’s next generation burner management systems and other products.

Net income was $2.1 million or $0.04 per diluted share, compared to net income of $2.0 million or $0.04 per diluted share in the same year-ago quarter. As expected, net margins slightly declined due to company’s expansion in workforce and capital invested in research and development projects.

Cash and cash equivalents totaled $18.7 million at September 30, 2014, as compared to $4.6 million at June 30, 2014. During the quarter, the company completed an equity raise for net proceeds of $16.4 million. The company continues to operate debt-free.

Fiscal First Half 2015 Financial Results

Total revenues in the fiscal first half of 2015 increased 75% to a record $28.9 million from $16.5 million in the first half of 2014.

Gross profit increased to a record $16.0 million or 55.4% of total revenues, compared to $9.7 million or 59.0% of total revenues in the first half of 2014.

Total operating expenses increased to $9.4 million or 32% of total revenues from $4.2 million or 26% of total revenues in the first half of 2014.

Net income was a record $4.3 million or $0.08 per diluted share, up 17% from net income of $3.7 million or $0.08 per diluted share in the first half of 2014.

Management Commentary

“Our record second quarter reflects the capability of our expanding U.S. service and sales teams to penetrate regional markets,” said Brenton Hatch, president and CEO of Profire Energy. "During the quarter, we appointed new channel managers to service and sell to industry groups with long-term sales cycles, including OEMs, governments and corporations.

"The baseline driver of growth continues to be the unique ability of our products to make oil and gas production safer, more efficient, and more compliant with industry regulations. As we look forward to our significant market opportunities, we’ve spent—and continue to spend—a considerable amount of time and resources investing in growth. So although margins have come down for this quarter, we anticipate that, with time, our operational investments will expedite the realization of our strategic objectives and help us maintain our industry leadership for years to come.

“As we look to the remainder of the year, we plan to continue entering new sales territories in the U.S. and build upon relationships with our many major customers. We expect our expanding footprint and product line to support our double-digit growth outlook in the large and thriving oil and gas services industry.”

Fiscal 2015 Outlook

Based on the company’s strong second quarter performance, Profire Energy is increasing its previously announced fiscal 2015 total revenues guidance from $46.0 million-$48.0 million to $57.0 million-$59.0 million, which would represent an increase of 61%-67% over the previous year. The company also expects its net income to increase from $7.0 million-$9.0 million to $8.0 million-$9.5 million, which represents an increase of 43% to 69% over the previous year.

Conference Call
I’m writing these notes after the call, so I apologize for any mis-remembered/misstated details.

The conference call was positive. The handful of analysts on the Q&A, as usual, focused on the next few quarters instead of the long-term. But the CEO, Brent Hatch, and CFO, Andrew Limpert, are focused on the long-term and their strategic position and investments. They see a lot of growth ops ahead, including int’l ops, and are prioritizing their opportunities and not just going to grow everywhere they see a chance for growth. (fyi: after-hours the stock was up 5%.)

After getting past the recorded comments, both Brent and Andrew were very informal, appreciative, and down-to-earth. They appear to know their company, their industry, their customers and their people very well, and they focus a lot on their customers’ needs and how profire helps them. They are investing heavily in R&D to meet industry needs, which they define broadly and indicated they have just a 3-5% market share of currently, so they see room to continue to grow.

I’m intrigued and optimistic about their testing of a recurring revenue service model, which they will use to also generate more sales as clients recognize needs to update their equipment. Funny moment: the CEO noted that the service model they are developing is a bit like when you take your car in for a 50 point checkup and the auto shop always can find something to fix, and then said something like “even if it isn’t really needed.” Then he realized how it sounded and wasn’t perhaps the best analogy and noted that they try to be honest and only find things that clients really do need, and noted that there is nearly always something. Awkward, but I still tend to trust their integrity and customer focus given the overall tenor of the call.

They noted that most of their sales employees have only been there about 6 months, and it usually takes 8+ months for them to really become productive. So that could be a positive, though their sales ramp up is also a risk in terms of how productive it will be, how effectively they can manage them, etc., to compensate for the added expense.

Some states, particularly Colorado, have laws requiring automated burner management systems to be installed by 2016, so this is a current positive growth driver for PFIE. On the other hand, the CFO indicated that probably the BIGGEST external THREAT to meeting their growth targets over the next year would be a decline in regulations or discussion of removing regulations that require their burner management systems.

Overall, they continue their growth, are investing in R&D and developing their service and sales personnel, and foresee ongoing growth ahead. I tried to get on the call to ask about their vision of the next 3-5 years (to step outside of the short-term focus), but didn’t get the op. So far, I’m glad to be in business with them, and may increase my holdings prior to the next earnings release.

I welcome your insights and questions (may not be able to answer your questions, but they provide great food for thought and we can figure them out over time).

Fool 'em
Denton

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Denton,

Thanks for the DD and insights into our company.

KLVanLiew

Thanks Denton & Chris. Looks like we have a company with a great product and a huge potential sales ramp ahead of them. If execution continues and the government stays its course, this could be big winner over the next few years.

Here’s my take on the PFIE earnings. I think it’s hard to ask for better. Revenue up 68% from last year, and up 19.4% sequentially(!), and raised estimates. They are also hiring sales and R&D people to expand and solidify their lead in a previously labor-intense area which they have automated. Think of the trouble a company faces when one of their employees gets injured or killed in an explosion (forms to fill out, insurance going up, investigators coming by, etc etc.). It’s in the drilling company’s interest to install the PFIE system. Then they don’t even need the guy who comes around to check the flames. And PFIE is growing all this out and staying profitable. I figure trailing adjusted earnings of 17 cents. That gives me a trailing PE of 24. Sounds good.

Think of companies like Z and AMZN that get a free pass with not much more earnings per share than PFIE because they are “investing in growth” and selling a hundreds of dollars a share (for AMZN, anyway). Well PFIE is investing in growth too.

Saul

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utahchris, Denton & Saul,

Thank you for sharing the information and your thoughts on PFIE.

Cheers,
Chris

I should have mentioned that there is a risk though. PFIE is helped by safety regulations, of course, though not totally dependent on them as it seems to be in the drilling companys’ interests to automate anyway. At any rate, if the new Republican congress tries to do away with safety regulations (as they seem to be threatening), it could certainly slow PFIE’s growth. Not sure it’s likely to happen, but even discussing it could slow down some sales. (On the other hand, it was pretty clear the Republicans would gain control of congress in this election throughout the last quarter, and that knowledge didn’t seem to slow PFIE’s sales. Who knows?)

Saul

PFIE is helped by safety regulations, of course, though not totally dependent on them as it seems to be in the drilling companys’ interests to automate anyway.

I do not know for sure but was under the impression that there is no federal regulation in the U.S. to require automated burner. One U.S. state does have that requirement. Canada has that requirement, too.

But one way or another, if the product can lower cost, save money and increase efficiency, it will do fine longer term.

-M

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You’d think if reduced regulation or the threat of it was a major risk area that they were starting to feel pressure from, that they wouldn’t be raising guidance? Be pretty bold to do so.

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The reason I said that is that (although I haven’t read the CC yet) Denton reported, in his summary of the Conference Call, that:

Some states, particularly Colorado, have laws requiring automated burner management systems to be installed by 2016, so this is a current positive growth driver for PFIE. On the other hand, the CFO indicated that probably the BIGGEST external THREAT to meeting their growth targets over the next year would be a decline in regulations or discussion of removing regulations that require their burner management systems.

Saul

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Republicans may talk about reducing regulations but in the real world little is likely to happen. At best some of the more absurd ones might be slowed a little. We have had Republicans and we have had Democrats and the Federal Government grows like a tumor under both of them. The only difference is that the Democrats are likely to create new bureaucracies, the old ones do fine under either party.

Congress loves agencies and regulations, it’s a way of getting something done without having to vote on it, without being held responsible. Fewer angry voters is very good for incumbents.

What may be holding back on PFIE price is the well known collapse of oil prices, which presumably will lead to oil companies being less profitable and thus less likely to undertake capital expenses, even if they do have a two year payback. Two year payback doesn’t help if you go broke in one year. Management’s remark about less regulation being their biggest risk underlines this as a true worry. Natural gas prices have been stable over the last year providing some support since most wells produce both.

Oil and gas prices have always been cyclical, boom and bust is standard in that business. Since their market penetration is so small with a little luck they can prosper in this down phase and and do even better in the next inevitable up phase. Looking at it that way this should be a long term holding. Except for possible competition.

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Who knows, maybe one of the smaller oil service companies comes and buys them out one day. Just a thought.

I finally got a chance to listen to the Profire call today (no transcripts on SA, unfortunately – has anyone found transcripts elsewhere?).

Overall I have to agree with Denton about it being a pretty upbeat call. A few points I found interesting (from memory, so there may be mistakes):

  • Management doesn’t think lower oil prices will have any noticeable impact. They’ve been through price swings before and never saw much correlation historically between oil prices and revenues.

  • Their technology works well for both oil and gas wells, and natural gas prices are doing just fine anyway. It’s not any harder or more costly to sell to natural gas wells.

  • Companies that try out Profire tech for some of their wells will frequently then adopt it for all of their wells (both oil and gas).

  • The CEO was recently out talking to customers and sees a lot of interest for their new Flare Stack product. Also mentioned that 90% sell along with a burner management system, so it’s really 2 sales in one.

  • Existing sales staff were assigned territories that were so large they didn’t have the ability to even try working with all the companies in their regions. With the increase in staff, territory sizes are being shrunk to give sales people a chance to establish more relationships.

  • The Bakken formation area is almost untouched by Profire and offers a big opportunity going forward.

  • Management believes their #1 competitor is simply a lack of awareness of the company and its technology. That’s one of the big drivers behind hiring dedicated channel managers, to make sure governments, OEMs, and big corporations are aware of them and their expertise, and to work those longer sales cycles.

  • Management estimates that only 3%-5% of wells have automated burner technology, and of those Profire has about 80% market share. So Profire is clearly the leader, and yet there’s huge opportunity ahead.

  • Regarding international expansion, they see big opportunities but have their hands full at the moment just with North America. I think that was one of the reasons why they signed a distribution agreement with UPC Global – it gives them a way to play internationally without having to invest heavily in it just yet (though they may in the future).

  • Management believes there will be additional regulation, but points out that all of the growth it’s seen in the U.S. has been purely based on the economics of their solution.

  • Historically, the company has seen its investments in growth begin to hit the bottom line after a few quarters, and that’s one of the reason behind the increase in full-year guidance. They believe things are going according to plan during this heavy investment period and are expecting to begin seeing the fruit of it by the end of the fiscal year.

  • Their pilot program with service plans seem to be going well, and appears to be a win/win: client companies are enthusiastic to turn over burner optimization and maintenance to Profire, who can do it much more efficiently and for less cost (and Profire calculates and shows to the company the return on investment they’re getting), and it provides recurring revenue for Profire and probably results in some additional sales.

Ok, that’s all I can remember at the moment :wink: Overall, it seemed to me that management was sincere, confident, doing the right things, and had its eye on the long term.

Neil
Long PFIE

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Thanks so much Neil. That was very, very, helpful. I also couldn’t find a transcript to read.

Saul