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