Profire Energy, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss ProFire Energy's second quarter 2021, ended June 30th, 2021. Joining us today is the co-CEO and CFO of ProFire Energy, Ryan Oviatt, and co-CEO, Cameron Tidball. Before we begin today's call, I would like to take a moment to read the company's safe harbor statements. Statements made during this call that are not historical are forward-looking statements. This call contains forward-looking statements, including but not limited to statements regarding the company's expected growth, increase in operating expenses, diversifying revenue streams, expansion in new markets, product development, the availability of company resources to make beneficial investments in 2021 and beyond, and future demand of profile products due to improving market conditions. All such forward-looking statements are subject to uncertainty and changes in circumstances. Forward-looking statements are not guarantees of future results or performance and involve risk, assumptions, and uncertainties that could cause actual events or results to differ materially from the events or results described in or anticipated by the forward-looking statements. Factors that could materially affect such forward-looking statements include certain economic, business, public market, and regulatory risk factors identified in the company's periodic reports filed with the Securities and Exchange Commission. All forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All forward-looking statements are made only as of the date of this release and the company assumes no obligation to update forward-looking statements to reflect subsequent events or circumstances, except as required by law. Readers should not place undue reliance on these forward-looking statements. I would like to remind everyone that this call is being recorded and will be available for replay through August 19th, 2021, starting later this evening. It will be accessible via the link provided in yesterday's press release, as well as the company's website at www.profirenergy.com. Following the remarks by Mr. Oviatt and Tidball, we will open the call to your questions. As part of the question and answer session, Mr. Oviatt and Tidball will be joined by Profire Energy's Vice President of Operations, Jay Fugle, and Vice President of product development, Patrick Fisher. Now I'd like to turn the call over to the co-CEO and CFO of Profire Energy, Mr. Ryan Ovip. Please go ahead.

Thank you, Operator, and we welcome all of you who are joining us on the call today. I will start the call by providing some updates on the industry and our business, followed by a review of the financials And then I will turn the call over to Cam to discuss some highlights from the quarter and to comment on our strategic outlook and direction. The second quarter of 2021 continued to show signs of recovery within the oil and gas market. The loosening of restrictions related to the pandemic has led to the reopening of commercial and retail establishments, as well as increased travel demand for both business and leisure. As a result, the average price for a barrel of oil increased 14% during the quarter, with current prices at a three-year high. This quarter represents the best revenue performance for the company of the last five quarters. In recent days, some local and state governments are considering or have re-implemented mask mandates in response to higher reported COVID cases, which could hinder the pace of the ongoing recovery. Last month, the OPEC plus ministers announced a $400,000 barrel per day increase in production each month through the remainder of this year. This is largely in response to the improving demand for oil and gas and global progress on the COVID vaccine. Despite the improving demand outlook, many EMP companies are not expected to ramp up drilling and production activity in the near term, given their capital budget constraints to remain within cash flows and a growing push from shareholders for other returns such as dividends and buybacks. The average onshore rig count in the U.S. and Canada dropped 3% in the quarter to 508 rigs, but has since recovered to over 620 rigs in July. The last time WTI was in the mid-70s, the rig count was 975. We expect EMP operators to continue to focus their CAPEX efforts on the maintenance of existing wells that was deferred over the past couple of years rather than drilling new wells despite these higher prices. We expect that this trend will create future demand for ProFire and ultimately a stronger, better capitalized customer base for us when drilling and production start to ramp. With that, let me turn to our financial results for the second quarter 2021. Yesterday, after the market closed, we filed our 10-Q with the SEC and discussed the quarter's highlights in a press release. As always, both of those documents are available on the Investor section of our website. The transcript of this call will be posted in the coming days. In the second quarter, we recognized $6 million in revenue, which represents a 19% increase from Q1 and a 38% improvement compared to the second quarter of 2020. The sequential and year-over-year increases were reflected in both product and service revenue. The improvements were achieved as a result of increasing demand for the industry and through the hard work of our sales and service teams to support customer needs and push our products into new areas of the midstream market and other industries. Gross profit for the quarter was 2.7 million compared to 2.2 million in the first quarter and 2.1 million in the year-ago quarter. Gross margin was 44% of revenues. 130 basis point improvement from the prior quarter, but still below our historical range, which will likely continue until our revenues improve to more historic levels. Total operating expenses for the second quarter were approximately $3.3 million. This represents a $277,000 increase sequentially as we unwound the furloughs that were implemented last year in response to the COVID-related shutdown. On a year-over-year basis, operating expenses increased 92,000 but remain significantly below our pre-pandemic run rate. We anticipate that we will continue to see modest increases in operating expenses through the second half of the year due to labor cost pressure and resumption of travel to support our business. Specifically, G&A expenses for the second quarter increased 1% year-over-year. R&D expense increased 31% from the prior year quarter and depreciation and amortization decreased 8% from the second quarter of 2020. Net loss for the second quarter was approximately 397,000 or one cent per share. This compares to net loss of approximately 602,000 or one cent per share in the first quarter and net loss of 809,000 or two cents per share in the second quarter of last year. Cash flow from operations in the first half of 2021 was approximately $1.6 million compared to $847,000 in the first six months of 2020. Cash and liquid investments totaled $19.1 million compared to $17.6 million at the start of the year. Accounts receivable increased to $3.8 million due to strong sales in May and June. Our inventory balance at the end of the quarter was $7.9 million down from $8.4 million at the end of 2020. We believe our current inventory levels, which represent mostly finished goods, remain sufficient to address our customer orders in the near term. We continue to operate debt-free. I will now turn the call over to Cam to provide highlights from the quarter and an overview of our strategic outlook and direction. Cam.

Thank you, Ryan. As Ryan mentioned, the overall petroleum sector continues to exhibit signs of a slow and steady recovery. We are pleased with the progress made during the quarter in the industry as well as our reported results. However, we recognize that overall, the sector remains suppressed in terms of lack of investment from the financial community and negative publicity from political and media outlets. We are pleased to see that during the second quarter of 2021, The quarterly average rig count for North America was up 27% from the year-ago quarter. As we have mentioned previously, rig count and, more importantly, completed wells are critical to Profire's legacy business as our products and solutions are utilized once the well is drilled, completed, and in production. We are optimistic that we will continue to see modern improvements to the industry through the second half of 2021. We continue to develop relationships, provide training, and collaborate on potential projects with our strategic partners, Spartan Controls and ECI, both of whom are Emerson Impact Partners. ECI has proven to be a valuable ally in the Northeast and our core legacy business. They have demonstrated strength in marketing Profire's complete solution packages to several end users. They continue to be in the top quartile of customer revenue for Profire. Spartan Controls, as mentioned previously, has the potential to bring our products to a diverse range of industrial markets in Western Canada. We are encouraged by the internal investments they have made to support integration, marketing, and business development initiatives of profile products and solutions. Turning to opportunities outside of our traditional upstream, midstream, and downstream utility markets, we have had a strong year thus far in furthering our excellent brand reputation and product performance in what we refer to as the downstream side of midstream. Our products and our team's proven project execution present substantial value to our customers, and we look forward to continuing our progress in this space of the industry. We are mobilizing our sales team and marketing initiatives in order to support our continued pursuit of these projects, which are prevalent throughout locations where we have sales and service assets in place. During the quarter, we completed a large-scale, nearly half-million-dollar project for a leading midstream energy infrastructure company. Our project design support, installation expertise, and solution performance have afforded us the opportunity to participate in future opportunities with this customer as they have several plants that will require upgrades in the near future. Additionally, we were able to complete Profire's first project specific to the petrochemical industry at a chemical plant during the quarter. Our burner management solution was selected and approved for use on a specialized appliance that is utilized both in chemical plants and in refineries. Our credibility and reference cases of similar projects we have completed in midstream applications supported our ability to win this opportunity. This project represented one of several projects completed in the quarter related to our strategic focus of revenue diversification into new markets outside of oil and gas. In the quarter, Profire completed an appliance upgrade for a major municipality related to construction and infrastructure. We also provided our second complete incineration package for use in the mining industry. Profire continues to engage in early stage discussions with significant industry participants on potential green energy opportunities that we believe will be necessary in helping to transform the energy industry in the coming years. We look forward to updating you as we progress on these initiatives. We remain highly focused and encouraged by the traction received in new markets as part of our overall strategy to diversify our revenue streams. These efforts are starting to pay off and prove our value proposition in non-oil and gas industries as evident from the business we are winning. We continue to demonstrate suitability in a wide variety of burner and combustion management applications across North America. We expect this trend to continue. We remain focused on supporting our channel partners, driving organic growth, and continued product development and enhancements. Our strategy is enabled by our strong balance sheet and financial discipline. We continue to deploy investments in support of protecting and growing our core business, diversifying our revenue streams both within our legacy business as well as in new growth markets, and in continuing to develop our exceptionally talented team. Before we turn the call over for questions, Ryan and I would like to thank our employees for their ongoing dedication and contributions towards the success of our customers our company, and our shareholders. Operator, would you please provide the appropriate instructions so we can get the Q&A started?