Profire Energy, Inc.

Financial and year-over-year increases were the combined result of the increased activity related to the ongoing economic recovery, higher oil prices, and consistent execution of the strategic pillars of our business. Gross profit increased to $4.6 million as compared to $3.4 million in the fourth quarter of 2021 and $2.2 million in the year-ago quarter. Gross margin increased sequentially to 47.9% of revenues from 41.6%, primarily due to product and customer mix, the price increase implemented across our product line at the end of 2021, and the fixed cost coverage provided by higher revenues. Total operating expenses for the first quarter were approximately $3.9 million compared to $3.7 million in the fourth quarter of last year. and $3 million in the first quarter of 2021. The sequential and year-over-year increases reflect the inflationary cost pressures on our business combined with restaffing efforts in response to the industry recovery over these periods. Specifically, G&A expenses for the quarter increased 33% year-over-year. R&D expense increased 20% from the prior year quarter. Depreciation and amortization was unchanged compared to the same quarter a year ago. Net income for the first quarter was approximately $627,000 or one cent per diluted share. This compares to a net loss of approximately $145,000 or break even on a per share basis in the fourth quarter of 2021 and net loss of $601,000 or one cent per share in the first quarter of last year. Cash flow from operations in the first quarter was a negative $1.2 million compared to a positive $1.8 million in the prior year quarter. This quarter's decrease was due to the timing of accounts receivable billings and collections and an increase in inventory. During the quarter, we repurchased an additional 510,000 shares of our common stock for approximately $622,000. So far under the program, we have repurchased 2.4% of shares outstanding from when the repurchase program began. As of March 31, 2022, we had roughly $632,000 remaining for additional repurchases. Our inventory balance at the end of the first quarter was approximately $7.7 million, up from $7.2 million at the end of 2021. Even with the significant increase in sales in Q4 2021 and Q1 2022, we've been able to successfully procure the parts needed to meet demand and even replenish some of the prior reductions in inventory. We remain strategically focused on inventory management. However, ongoing labor constraints and supply chain issues combined with another round of stringent COVID lockdowns occurring in China could bring challenges as we head into the summer months. I will now turn the call over to Cam to provide further insight on our business. Cam.

Thank you, Ryan. As mentioned, we are excited about the financial results of the first quarter. We have continued to focus on returning the business back to profitability while investing in our future and our ability to scale as market demand improves and as we continue to gain traction in new industries. As Ryan stated, the results of the first quarter are evidence of not only an improved market for our core products and technologies, but an indication of the progress we are making with our strategic imperatives. Our traditional upstream and midstream business streams benefited as the combined onshore rig count for the US and Canada averaged 816 in the quarter, which represents a 16% increase from the previous quarter and a 37% increase as compared to the 2021 full year average. The average WTI price per barrel in Q1 was $95.81, which is a 23% increase from the previous quarter and a 40% increase from the 2021 fiscal year average. The US drilled but uncompleted well count continued to decrease to 4,273 at the end of the quarter. Remaining ducts at the end of Q1 represent a 52% drop from its peak count in June of 2020. The rise in drilling activity coupled with a renewed interest and need to invest in retrofits and upgrades, indicates the essential requirement for hydrocarbon-based energy. Though the industry still faces constraints surrounding supply chain, human capital, regulation, and underinvestment, Profire continues to be uniquely positioned with a niche product and solution suite with a dominant market position. Our expertise and brand reputation continues to bring value to our customers as we support them in improving safety for their team members and protection for their critical assets while improving the efficiency of their appliances. On past calls, we have referred to and provided updates on our diversification progress focused on the downstream side of midstream, or in other words, larger midstream plant operations and facilities. Our reputation in this space continues to grow as we continue to attract new customers and earn repeat business. We feel that our PS3100 solution, coupled with our ability to successfully engineer, design, and execute on these projects sets us apart from legacy solutions as well as our competition. We are encouraged by the revenue generation we achieved in Q1 from completed projects, the sales orders we received in the quarter, as well as the overall growth in the opportunity pipeline. We expect to double last year's revenue related to this growth segment in the fiscal year, and we are currently tracking with a run rate approaching 1.5 million for the fiscal year. As an update to our diversification progress in alternative industries, we are thrilled to report that in the quarter, our solutions were utilized on several projects including biogas, power generation, mining, landfills and reclamation. In the quarter, we were able to generate revenue from both repeat and new customers. As expected, and in support of our investment strategy and feature development, marketing and sales, we were able to close our highest dollar amount to date in non-oil and gas revenue in Q1. Based on our Q1 sales, Future orders received and our opportunity funnel, we believe that we will be able to achieve triple digit revenue growth in this business stream as compared to the previous fiscal year with an annual run rate approaching $1 million. In Q1, we were able to close seven opportunities in this segment that are expected to be completed in Q2 and Q3. These projects further expand our solutions into metal manufacturing, mining, LNG, landfill, refining, biodiesel, and food and beverage. Q1 successes in our traditional and diversification business streams demonstrate and add validation to the strategic pillars that we have positioned our team to focus on. We have a shared vision at Profire, which resonates and is understood across the team, and we are beginning to see the expected results. Our team members continue to execute in the face of a very challenging business environment. Supply chain issues continue to impact us all, and though we have fared well thus far, Profire is not immune. New challenges are regularly presented, causing the need for our team to pivot and adapt. We expect some relief through the end of Q2 and beyond. However, we expect ongoing challenges throughout the fiscal year. As an update to our current R&D initiatives, we have implemented a balanced investment approach with the goal of bringing solutions to both our current customer base and markets, as well as preparing for the future. Our R&D team is developing a solution that we feel could solve a significant pain point experienced by upstream and midstream producers related to collecting and reporting of real-time carbon emissions data. Though still in beta testing, we have begun early product trials with encouraging results. We have received valuable feedback and will continue to develop the user experience and bring on further product trials through Q2 and Q3. We look forward to sharing progress on this initiative on future calls and meetings with our investors. We have also commenced research and invested R&D efforts to support a potential solution to improve the efficiency of the natural draft equipment utilized throughout the oil and gas production and processing industry. Our goal is to support our customers' ESG initiatives to lower overall GHG emissions and methane intensities. In the quarter, we began testing on hydrogen blending at our R&D facility in Atchison, Alberta. We believe that hydrogen has the potential to be an essential energy source in the future. However, the pathway will begin by blending with natural gas. Aligning with industry progress, we see the potential migration to hydrogen at higher levels over the next eight to 10 years. As hydrogen becomes more affordable and readily available, We expect to see investment in conversion from natural gas to hydrogen. Profire has begun research and is planning for future investments so as to enable ourselves to be at the forefront of this energy source evolution. We continue to be optimistic about the future of our business, our team members, and our shareholders. Our position in our core traditional markets continue to grow in terms of customer acquisition and market share. We have begun to improve our position and relevance in being recognized as the go-to partner for larger midstream applications. Our efforts to grow outside of oil and gas, though early, are meaningful and are snowballing in the right direction. We are investing appropriately in our future with respect to our R&D initiatives. Our M&A strategy remains intact as we continue to look for opportunities that are in line with our strategic initiatives and culture. Before we turn to questions, Ryan and I would like to thank each of you. We thank our team members for their courage, dedication, and creativity. We want to thank our shareholders and the investment community for their encouragement, confidence, and interest in Profire and our team. Operator, would you please provide the appropriate instructions so we can get the Q&A started?

Absolutely. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from John White with Ross Capital Partners. Please go ahead.

Good morning, and congratulations on the very nice improvement on your numbers. Thanks, John. Thank you. Good morning to you. I was interested to hear about a little more detail on your carbon emissions initiative. I take it that's a new product, and can you elaborate? Do you have this product testing out in the field right now, or how many units is it installed on?

Yeah, great question. It's something we've been, we've conducted quite a bit of research on some of the pain points of our customers, and we came up with an idea through some of our marketing and research, and we do have currently four partners. They're a combination of upstream, midstream, as well as someone outside of oil and gas, a company outside of oil and gas, where we've installed kind of that MVP, minimum viable product, to see what kind of results we can achieve. But basically, the theory behind it, all of our customers in this space, and really most industry, have to get to a point where they can more fully quantify their emissions. Our early research shows that many of our customers, if not all of them, well over-report. And the reason we do that is because it's difficult. There's a challenge to it. There's some secret sauce. There's some software that needs to be built. And it can be quite expensive. We've invested in developing a low-cost, we hope, recurring revenue solution that will be able to help producers, midstream users, and eventually other industries actually quantify what they're using in terms of how much gas they're burning and their CO2 emissions, which you can calculate from that. We do have, I think we have about 10 out there right now. We're trying to put a bunch more out in the next couple quarters, but we've got lots of valuable feedback from our customer base that are trying to see what else we need to do to better tie into their current systems and infrastructure. But some early results show that there will be some huge value to our customers to helping them just actually know what they're emitting because right now they're overstating it.

Thanks very much. I appreciate that detail and it sounds very exciting and sounds like you've got a diversified bisector, a diversified set of testing going on.

Yes, absolutely. We're actually looking at, we're not just on like heated appliances as well. We're also looking working on some applications that are found in the transportation and distribution of natural gas. There's, we believe, an untapped market there to support customers in that as well.

Thanks again.

I'll pass it on. Thanks, John.

Thanks, John. The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Morning, Brian and Kim. First question on the 3100 projects that you, Cam, gave a good overview of all the things you had going on. Just give a sense of are you seeing a lot more repeat customers, and I guess what's sort of the genesis of this project ramp and growth you're seeing? Is it really getting the brand out there and an operating history, and I guess what's sort of driving all of this growth?

Yeah, thanks, Rob. Yeah, great question. The 3100 solution is We brought it to market. It's interesting how old the product is getting. It's about four or five years old, but really it had to get that stable base of customer and application, which we did in the core upstream business before we could even bring it to some of our diversification efforts, which we mentioned the downstream side of midstream. We're even doing them in downstream utility business and now outside of oil and gas. Really, it was one that was building up that reference case, that operating time, as you mentioned, but really it is that brand awareness. Now, the strategy in outside of oil and gas, which we talked about, we had a number of projects in the first quarter. Half of the business was repeat and half of it was new, so that's great. We're getting some repeat customers that's showing that they like the product, they like what it's doing. But the strategy is a little different than what we've done in the past where we go to the end user, we go to the OEMs, we go to the instrumentation companies and system integrator companies that are living in that space. For non-oil and gas, it's really a focus on that OEM business. We mentioned that we want some projects in metal manufacturing. Well, our sales team, they're not showing up to steel mills. They're not showing up to those plants. They wouldn't know us from anybody, but the OEMs and the engineers that support those types of businesses and the systems integrators, we've spent a lot of time over the last really year and a half building those relationships, getting product trials, getting our product into their hands, working with their engineers, and it really just takes a few of them leaping off. It takes the Our ability to deliver over our competition in this space is a real strategic advantage for us. And as customers try it, they have success. Those OEMs then replicate from there. So we look forward to, as we mentioned, it's snowballing. It's still early, but you can do some creative math. You're all good at that. When we talk about that, we feel we can triple that business from last year to a meaningful run rate. That's how Profire's core business started as well. You had to start from somewhere, and so we really believe that we'll see some meaningful growth in this space. Ryan, did you have anything you wanted to add on that one?

No, I think you covered it well, and it's that work that we've been doing over the last couple of years in building that customer base and even marketing outreach that we've done recently. We participated in, during Q1, in an ESG for Energy conference, and that actually has generated some business for us as well. Just being a part of that and supporting the industry as it's dealing with these types of challenges and issues, getting the word out that we're capable and that we can do it is really starting to have an impact.

Great to hear. And then on the kind of demand environment, With oil kind of staying high, do you sort of see this demand level continuing, or how do you sort of see the demand at this point? I know it's hard to predict a little bit the environment, but are you seeing kind of continued order activity and strength kind of following on to the good Q1 results?

I think we both would have something to say with this. Go ahead, Ry.

Go ahead.

I was just – this is – This is one of those cases where we've been vague in the past, especially the last few quarters going through COVID, but if there was a time to feel a little more optimistic and confident in oil and gas production, this would be it. Orders are strong. Yeah, is there challenges to supply chain? Yes, but if any of our team members are listening to this, we are incredibly proud of how they have adapted to make changes on the fly, to go out and figure out how to navigate this. It's an incredible sight to see. It lends to the strength of our team, but we see this continuing on. We see that customers, they're going to produce. They need to. That duck inventory continues to come down, so that stockpile, we don't know for sure, but we believe probably less than half of those ducks are probably even a potential to complete. there's going to be a lot of dead, pent-up inventory there. So we look at what's happening globally, and although we never condone war or anything like that, those things make a difference. The fact that we are still getting a little bit of mixed messages from the feds, it's Ryan's comments about, yeah, we'll open some lands, but you're going to pay more royalties. So we get some mixed messages there, but All in all, we believe that North American oil and gas production is absolutely essential. The world knows it, and we'll see it continue. Ryan, sorry to interrupt you.

Yeah, no worries. All good. Great comments. And I echo those comments as well, and just to maybe reiterate a little further, not only is are there all those challenges and issues on the supply side for oil and gas, but we're in an environment for the past four to five years where here in the US, there's been a significant underinvestment in the industry, in new production, in new wells, in maintenance capital, in equipment, all of those things that are now, the two coming together at the same time are creating an environment where it's extremely challenging and there has to be a reinvestment in the industry, even just to maintain current levels of production going forward, let alone to try to rebuild or grow that production level if we were to replace international purchases from Russia or try to regain US independence in oil and gas. It's not just flipping a switch All of a sudden, we're back to 13, 14 million barrels per day production. There's a lot of underinvestment that's happened, and we're seeing a drive in our side of the business to help support EMPs as they're trying to recapture some of that and get back to where they were previously. Okay, great.

Thanks for the color, and congrats on a great quarter. Thanks, Rob.

Once again, if you have a question, please press star, then one. The next question comes from Jim McIllery with Dawson James. Please go ahead.

Good morning, Jim. Thank you, and good morning, guys. I was just hoping you could comment on the pace of revenue that you see for the next year. I know you're not going to give specific numbers. The way I'm looking at it, your comments says that the demand environment is good, but the supply chain could hurt you. And right now, do you see that one is outweighing the other, or is the supply chain, you know, something that you can overcome with additional sources of supply? Can you just kind of comment how those two are working against each other?

Yeah, for sure. I'll jump in first. On the supply side, it's a very challenging environment, as everyone's well aware, in every facet of your lives. But even in Q1, we had some things pop up in Q1 that were totally unanticipated. We thought we had locked in certain components and pieces of our equipment and had delivery dates and Out of nowhere, those were shut down, delayed, with no official date in sight, and we had to scramble. Our team did a great job of scrambling, finding new suppliers, getting a new source, getting things secured, and even then, there were further challenges or issues, but we've been working through that. We believe we've taken an approach, though, where we're trying to be as in front of it as we possibly can. For example, we put in some extra orders on product that we have manufactured directly in China early on, and we were able to secure those in the last month before China shut down again. So we believe we're well supplied in that portion of our product line. In other areas, we've been putting in advance orders for product that we think we're going to need towards the end of this year and even into 2023. So we're working with our suppliers to get those orders so that they can start to procure the necessary parts and have that procurement cycle build up with release dates and anticipated times of when we need product in and so forth. In the short term, we are seeing significantly more challenges. We think we're setting ourselves up pretty well for Q3, Q4, and even into 2023, but there are some challenges related to Q2 where we've had some delays in the month of April where we've had to delay our shipments for a period of time, not all of our shipments, but some of our shipments to customers, extending the lead times with some of them but we have new products coming in and we're working through all of those challenges. So maybe this is a long answer to your question, but we think we're doing the right things and we're making the best moves that we possibly can, but there are curveballs that come out of nowhere that we have to figure out a way to deal with. So far we've been really good at dealing with those, but you never know what's coming or how hard it's going to be to deal with.

It sounds like in your commentary and also it was either in the queue or in the press release that Q2 has some special challenges that you're trying to work through. Am I hearing that right?

Yes, I think that's a fair way to state it. We aren't saying that Q2 is going to be a terrible quarter for us, but we are saying that there are challenges in the short term that we continue to deal with and that we're working through. Sam, do you want to add anything, any other perspective?

Yeah, I was only going to change your curveball to probably more like a knuckleball. It's a curveball you can kind of predict, but as Ryan mentioned, we're... We look back at things. You don't want to look back too much, but you want to look back and say, would there have been something we could have anticipated better? And can we learn from that in the future? And this is one of those situations. Go and ask the Ford Motor Company how they're doing with their supply chain and some of these things. We're in a grateful position where we don't have catastrophe. We probably have a blip. But that being said, those knuckleballs, they're coming fast and furious. So we continue to try to have to adapt. But luckily, we've already lived in a world where we have to be ordering way ahead. That's been a reality for Profire for some of our components because they are electronic and you do rely upon multiple vendor layers. So again, we look back. Is there something we could have done better, done differently? In these cases, very tough to predict, but I think it's more of that blip as opposed to catastrophic events.

Got it. Just a couple more. I'm going to ask both of them now. So the first one is, Cam, could you repeat what you were talking about with the duck inventories and something about half won't be drilled or can't be drilled? And then the second question is, When you're looking at your operating expenses for the rest of the year, it kind of sounds like it's steady as she goes. I mean, there might be a little bit of an increase if you continue to have, you know, that top line growth. But there's not any major ups or downs in the OPEX from current levels. It's how I'm looking at it. Is that correct?

Don't tackle the ducks. question and then, you know, Ryan jump in on the operating expense. But the remaining duct inventory, so at the end of the quarter, it's around 4,200, which is 52% lower than it was in June of 2020. So those are already wells that have been drilled, but they haven't been completed, meaning they haven't brought the work over rig, they haven't brought in the heaters, they haven't brought in the subsurface equipment. And so my comment on you know, 50%, it's kind of a guess that we have. No one knows for sure. The operators themselves don't know. But what we know is a lot of times, you know, you've drilled a pad and they'll just move on. Maybe they've completed some of the acreage in the area and it's been a low producer or it's been a high producer. If it's been a high producer, they're going to go after that stuff. If geology says and seismic readings say, let's get this, they're going to get it. But We believe that if there's a certain percentage, we estimate, say, around 50% of those drilled but uncompleted wells are probably never going to be complete. So all of us on the call look at that and go, well, I know what I'm paying at the pump. I know what my electricity bill is right now. I know that it costs a lot more money to buy steak right now. You've got to think that that's not going to stop. That's probably going to continue because the supply... behind the demand is not going to keep up. The feds have dipped into the Federal Reserve, the untouchable reserve. There is a shortage. I don't think we're to the point yet where we're going to be seeing people lining up at the pumps for miles and miles, but who knows. So that's my comment on that. It's one of those things that shows more investment needs to go into the industry. All your major... you know, analysts like Reifstad, they're talking about underinvestment, underinvestment. They need to drill and produce because the duck inventory isn't a safety net anymore. So, sorry, long-winded answer on that. Does that kind of clarify for you, Jim? Yeah, that's great. Thank you.

And I'll just add to that. As we track the duck count number each month, we've seen a A significant reduction in the monthly change in that number. Several months back, quarters back, that number was dropping pretty significantly each month. The number of completions in the industry was far outpacing the new wells being drilled. But that has shifted quite significantly with the rig count coming up. The number of new wells drilled each month is just under the completion number. And the change in the duck count is coming down. So we, we think that as Cam explained, there is that dynamic of of ducks that probably just won't be completed and that that trends probably going to continue that we may plateau at this duck count number or the rate of decrease is going to slow down from what it has been. And then if I jump over to your other question on the office side. We agree with your assessment. We don't have current plans to significantly grow the OpEx. Obviously, as we've mentioned numerous times, there are inflationary pressures that we will continue to deal with that will be a challenge and labor pressures and all types of things that are going to impact our business, but we don't anticipate any significant changes. We're not going to rehire a significant number of people at this point in time, though if demand grows, we will continue to hire, and some of those hires will be more on the revenue generating side than on the back office side of our business. But we hope and we believe that we're at a sustainable good level from an OpEx perspective, barring any significant changes or inflationary issues that we don't anticipate at this point.

That's great. Very helpful. Thanks a lot, guys, and take care, and we'll talk soon.

Thanks, Jim. Sounds great.

Thanks, Jim.

The next question comes from John Baer with Ascend Wealth Advisors. Please go ahead.

Thank you. Good morning. Yes, good morning, gentlemen. How are you? Two questions. Good. Two questions. One question. Going back to John White's original and your discussion about these beta tests, when you're doing that, does the potential customer assist you with the expense on that, or is that all up front and out of your pocket?

Right now, those are all out of our pockets. Luckily, it's not expensive hardware. Obviously, the R&D behind it has an investment, but the hardware itself is not capital intensive. We are able to install it. It's not a laborious install. It doesn't take cranes or anything or welding. It's pretty simple. We do most of it in-house, set up on a little stand, and then we ship it out. They assist us in terms of labor and connectivity to their systems, et cetera. But, yeah, not a large capital expense for it. But right now we're covering that. Our hope is that anyone that we do a trial with is that they're a potential customer. If they're not invested or interested in it, we kind of disqualify them as a beta test. We don't want to put something in that someone would have no ever thought of buying.

Right. And then would you be able to recover any of that cost or that be built in going forward, you know, if they became a customer and hopefully a repeat customer?

Yeah, we do have some of it built in for the future, but really we're looking long term with the product and scalability and and hopefully you get some in good contracts with some of these companies, is the goal is to get a recurring revenue contract.

Right. Okay. And my other question is regarding the supply chain. Have you had any circumstances where a particular supplier or manufacturer within the, as you mentioned, I think multi-level, a lot of different touch points, Any of them that have just plain gone out of business that can no longer supply a particular part or component that might be used along the whole process?

Does that make sense? Yeah, it makes sense. We haven't had any major significant Critical suppliers go out of business entirely, but plastics are a problem right now. Any of our components that are made from plastic, some of our enclosures for example, our manufacturers are having difficulty getting the supply of plastic to make those products. So those are some areas where we've had to be creative and look at other sources and other, options potential. We had to even get some recertifications done to be able to go with a different option. And that's, again, part of the great work that our people have done during Q1 and continue to do. So not any that we know of that have gone significantly out of business, but there are many that are facing significant challenges as well.

And then if you do change a supplier like that, you just mentioned having to recertify, is that in itself a pretty big obstacle? I mean, does that take a considerable amount of time and therefore delay rolling out that product or not?

Normally it would be of... Yeah, definitely. Normally that would be of huge stress to us. Anytime you bring up certification... The hairs on your neck go, and you get a little bit angry and cranky. But in this particular instance, we had to do a quick recertification. Luckily, it's just more of a paperwork, and it wasn't a huge cost. It was a short time frame. I do still think, and kudos to the team, they got through it in record time. I think we were able to express the urgency to the certification body. Yeah, normally it would cause a lot of stress, but luckily we don't foresee having to do really any more research. It's more now just finding new components, finding new suppliers for those components, doing a lot on the broker market for electronics, which is not fun, but it's a good challenge and opportunity for our team to understand that better. We don't just leave it. Obviously, with any manufacturing of a product, you have many layers of vendors. We're not just leaving it to one vendor to go and find it. We are proactively helping them to make sure that we can keep ahead and keep up with things, because it's one of those things where you don't always get the truth from the vendor, so sometimes you've got to go to the vendor's vendor, and they probably weren't meaning to fabricate anything, but we're going a few levels deep because we want to just get ahead of this as much as possible. We're the ones at the end of the day who have to tell a customer yes or no. So we want to put the destiny into our own hands.

And generally speaking, you know, there's been some, you know, chatter about, oh, will this help? Will there be a resurgence in onshoring? production and component production and so forth. What's your sense of that? Are you seeing more of that? Are you finding more vendors that you can rely on that are more, let's say, North America-centric as opposed to Asia Pacific?

Well, you know, again, when it comes to electronics, that doesn't exist in any large scale in North America. It's here, but it's really not. So that would take a major shift in the world. So on that side, no. But on some of your mechanical goods, we've always tried to have dual or triple redundancy in certain product lines so that we can take care of that. We mentioned we've done really well with our direct relations with China where we're bringing in some products from there. but we already have and had in place redundancy onshore to be able to supply that. We've built partner relationships so that we wouldn't have a blip there. Yes, it's a change to a degree in margin, but not significant so far. We haven't seen. Obviously, China is a lot different than it was 10 years ago, 20 years ago. But in terms of electronics, that is something that Asia really has a stranglehold on But that being said, are we still looking? Absolutely, especially on the plastic side of things.

Very good. Thanks for taking the questions. Keep up the good work.

Certainly. Thanks, John.

Once again, if you have a question, please press star, then 1. The next question comes from Aria Cole with Cole Capital. Please go ahead.

Good morning, gentlemen. How are you? I hope all is well. Two quick questions for you. Regarding, you mentioned earlier in the call that there is some products for whom shipment may be delayed from the June quarter into the September quarter. Can you kind of quantify that? the total value of products that might be delayed into the September quarter in terms of hundreds of thousands of dollars?

Yeah, I think I was the one that made some of those comments. And part of what I think we're experiencing there is maybe not so much of a delay between the quarters, but delay within the quarters. We have seen some delays in April, but we expect that later in the quarter we'll be able to recover those, though our pipeline of orders is building. So there could naturally then be a little bit of it that spills over into other quarters because of the supply chain issues. Right now, I would probably say our best estimate might be that it'd be in the range of 10% of what's currently flowing through. But again, there's lots of things that will come in to impact that. We are working to alleviate that as much as possible and to accelerate and bring product in as quickly as we can, even faster than maybe what's been quoted or promised to us at this point. But there are still significant challenges there. So we don't see it being, it's certainly not a 50% or even 30, 25% delay between quarters or shifts between quarters, but there could be some impact.

Okay, no, no, fine. So, I mean, that's, I appreciate clarification. We're talking about product delays that might be, you know, two weeks, four weeks, something like that. It's not like ordering a car where they're saying, wait six months. And then the second question is regarding the carbon emission data product that you're piloting. You alluded to the fact that the business model might be recurring in nature. Is it fair to say that this product maybe is more of a software than a hardware product, and so the margins down the road, although you don't know them now, might be closer to the 80% plus area versus in the 40s because it's more of a software information product being delivered by a network?

Yeah, great question. So we want to be careful. We wanted to share that just because we've had some early great feedback and we've got customers who are interested in it. We want to be cautious. Obviously, public company, we don't want others to know as much about this as possible. But you're absolutely right. Hardware is not the goal here. Software is the goal. And we fully expect and hope that software margins can be derived from this. And again, we hope that it will be an opportunity not just to take to our existing customers, which is always one of our, it's always a strategic imperative, grow that core business, but we want to take it to our diversification streams as well. And that's, we think, a great opportunity. But yes, software is the goal with this. Software and, yeah, that kind of online platform and portal, etc.,

Okay. And then the last thing is regarding this product, you know, you talked about a minimum viable product. I mean, is it good enough that when you make a couple changes to it based on customer feedback that the next version could actually be commercial? Or are you thinking it's going to take, you know, two or three iterations and the product a year away from launch? I'm just trying to sense for how close it is to being good enough for customers to actually go commercial.

Commercial launch, we haven't finalized on that, but we're hoping that by the end of the fiscal year that we could be close to or in early commercial launch. We're not three or four iterations away. The hardware itself is probably where it needs to be. There's a little tweak there. The software, the user experience is more of the fun stuff and making sure that whatever you build is scalable. So I would say we're not a year away from the ability to be commercially launched, but more of that Q4, close to a year.

Well, thank you. I commend your creativity and innovation, and best of luck with the pilot. Thank you.

Excellent. Thanks, Aria.

There are no further questions in the queue. I'd like to hand call back to management for closing remarks.

Thank you, operator. And we thank everyone for joining us on the call today to discuss our first quarter results. We'd like to thank you all for your continued support. As always, we're available for any discussions or questions you may have. We'll be participating in the three-part advisor's virtual ideas conference in June. For more information or to register, please contact the three-partner advisors team and thank you and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.