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.