Profire Energy Inc (PFIE) 2015 Q2 法說會逐字稿

Good afternoon everyone, and thank you for participating in today's conference call to discuss Profire Energy's fiscal second quarter ended September 30th, 2014. Joining us today is the President and CEO of Profire Energy, Brenton Hatch; and the CFO, Andrew Limpert.

Before we begin today's call, I would like to take a moment to read the Company's Safe Harbor statement. Cautionary note regarding forward-looking 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 Profire Energy creating a growing awareness of burner management products throughout North America; the Company aggressively deploying capital to further develop their share in the oil and gas market; current investments made by the Company in people, products and offices leading future revenues, income, or strategic advantage; layering channel managers in the sales department which will improve traction in the key acquisition areas; Profire planning on expanding the marketing, sales and services team; Profire continuing to lead the industry in burner management products and services; the Company's primary focus on North America oil and gas industry; the current market opportunity, and not having a shortage of wells to outfit the Company's burner management systems; our sales trends not following the trends of oil and gas prices; changes in industry regulations providing Profire with additional tailwind; the Company's lack of reliance on regulation to grow the business; the R&D team continuing to develop innovative products for the industry; the Profire's service program offering a compelling value to oil and gas industry; or the Company's future performance relative to guidance discussed on this call.

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 risks, 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 risks and 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 that it will be available for replay through November 18, 2014, starting later this evening. It will be accessible via the link provided in today's press release, as well as on the Company's website, at www.profireenergy.com.

Following Mr. Hatch and Mr. Limpert's remarks, we will open the call to your questions.

Now I would like to turn the conference over to the President and Chief Executive Officer of Profire Energy, Mr. Brenton Hatch. Please go ahead.

Thank you very much. Good afternoon, everyone. Thank you for joining us today. In the second fiscal quarter, we reported record revenues and significant net income which were generated by our growing sales and service teams and territories. These teams have been taking advantage of the energy revolution that is underway in North America and creating a greater awareness of our burner management products. Now I want to also note that we take the opportunity to develop this market very seriously, so we are in an aggressive growth investment phase and are deploying capital to expand quickly throughout North America.

While we will need to allow time for this deployment of capital to become productive, we are hopeful that these investments will help us more effectively and quickly achieve our strategic objectives and help us maintain our future industry leadership. But we are very much looking forward to the months and years ahead of us as we execute on our strategic plans and address numerous market opportunities.

Now before I delve further into this discussion, I would like to turn the call over to our CFO, Andrew Limpert, to take us briefly through the financial details of the quarter.

Andrew?

Thank you Brent. Let's start with the income statement. In the second fiscal quarter of 2015, our total revenues increased 68% over the same year-ago quarter to a record of $15.7 million. 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, and was also driven by leveraging new service and sales personnel as well as the expansion of existing sales and service territories.

Our gross profit increased to $8.5 million or 54.4% of total revenues as compared to $5.6 million or 59.5% of total revenues in the year-ago quarter. We have not seen an increase in product costs nor a decrease in pricing power, and consider this decrease in our gross profit percentage to be a temporary fluctuation to our historical levels and attributable to a few things:

First, a quarterly change in the composition of our product sales which, for this quarter, included more valve products that has been typical, which we do not anticipate will be a long-term trend.

Second, an increased allocation of overhead to cost of goods sold products derived from our larger warehouse, totaling more than $0.3 million. Now I should note that we anticipate this effect to be less significant as we continue to grow, as higher revenue levels, particularly facilitated by this warehouse, I'll add, will help absorb this increased overhead charge.

Finally, an increase in the percentage of sales derived from service. While we have noted before that service revenue may increase slightly as a percentage of total revenues, we see this as a short-term increase as we work to train a specialized service team that has agile reach throughout North America to support our product sales.

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 our investment in growth-related activities, which entailed, first, the hiring of additional personnel in sales, service, marketing and R&D, particularly in Alberta, Texas, Pennsylvania and Utah, to support long-term sales growth, especially for key industry areas such as the Permian Basin and Colorado; second, research and development expense to support the introduction of our next-generation burner management systems and other products which totaled $0.5 million.

These operations, investments in key areas such as sales and R&D, accounted for a significant amount of operating expenses. The increase in total operating expenses was also partly driven by increased non-cash stock option expense of about $0.5 million, increased insurance expenses about $0.8 million, and increased professional fees about $0.2 million.

Our net income was $2.1 million or $0.04 per diluted share compared to net income of $2 million or $0.04 per diluted share in the same year-ago quarter. Cash and cash equivalents totaled $18.7 million at September 30, 2014, as compared to $4.6 million at June 30th, 2014, the increase being largely attributable to the equity raise completed during the quarter of $16.4 million net to the company.

Now looking at our results for the first half of fiscal 2015, our total revenues increased 75% to a record $28.9 million compared to the same period last year. Our gross profit increased to a record $16.0 million or 55.4% of total revenues compared to $9.7 million or 59% of total revenues in the same year-ago period. Our 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 fiscal 2014.

Our net income was $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 fiscal 2014. Overall revenues grew considerably as we realized returns from previous operational investments. And we saw some margin pressure as we have invested significantly for the coming months and years during this important investment phase.

We believe we've got a great market opportunity ahead of us, and we are investing accordingly. So although it will take some time to make these investments in people, products and offices productive, we are optimistic that they will allow us to do increasingly more exciting things in the coming months and years.

So thanks, Brent, and I'll send it back to you.

Thanks, Andrew. As Andrew mentioned, these record results reflect the increasing capability of our US service and sales team to further penetrate regional markets. This year, we have expanded our footprint to several new sales and service territories, including Michigan, Ohio, Iowa, North Dakota, West Virginia and West Texas. We also made progress in Australia.

Now while we have been expanding geographically, there have been certain industry groups and sales channels with long-term sales cycles that we have not adequately addressed. So we have brought on new channel managers to manage and develop a number of key channels which include OEMs, government entities, and large corporations. Although these are often longer-term sales, we believe that layering on these channel managers will enhance our traction in key areas, and ultimately generate very valuable, leverageable relationships in the long run.

During the quarter, our sales team expanded from about 18 to 26 employees, and our service team expanded from about 20 to 28 employees. In total, there are now 54 sales and service team members. We also grew our marketing team and are already seeing productive activity within. So to put the size of our sales and service team into perspective, it now accounts for nearly half of our employee base. And we plan to continue expanding our marketing, sales, and service teams to address the strong market opportunities we have identified.

As we look at these industry opportunities that lie ahead, we are optimistic that we will continue to lead the industry in oilfields burner management products and services. Our primary focus will remain on North America oil and gas industry. We estimate that there are more than 1.3 million oil and gas wells in North America, with 45,000 to 50,000 new wells as added annually, and we estimate our current market penetration is still well below 5%.

We recognize that with oil prices declining over recent months, some shareholders and investors have questions as to how this will affect our revenues. While some capital expenditures may decrease for drilling of new wells, the market opportunity is such that we believe that we will have no shortage of wells to outfit with our burner management systems.

Additionally, bear in mind that there are numerous reasons why someone may purchase a burner management system, one of which is efficiency. So even when oil and gas prices are down, we can remain relevant for producers by improving their operations efficiency, safety, and compliance. So although we are sometimes lumped in with oil and gas companies and their trends, our revenues have not historically been correlated with oil and gas prices. We feel optimistic that our revenue growth will continue to be fairly impervious to the changes in asset prices.

With the Colorado mandate that went into effect this year, we are experiencing strong growth and expansion in that area with a number of key producers. We see other changes in industry regulations that could potentially provide significant tailwinds in the long term, such as early-stage federal regulations affecting oilfield emissions that are set to take effect in 2015. These regulations have already been outlined in our corporate presentation, and are available on our website.

I want to emphasize, however, that while we do, of course, keep an eye on industry regulations, we are not reliant on them to grow our business. Our historical growth in the US is a testament to that. Until this year, there really were no regulatory drivers in the US, but we saw significant growth anyway. So we encourage you to keep that in mind as you think about our reliance, or lack thereof, on regulation to grow the business.

Now, on the subject of growth strategy, one of the key product developments during the quarter was the release of a new flare stack igniter, or FSI, which is a sophisticated and rugged product that complements our product portfolio nicely. We have seen the product serve as a beachhead for sales of our flagship products, and are finding that the majority of FSI sales are paired with a burner management system. This approach has opened new doors for our sales team, and our R&D team will continue to develop innovative products for the industry.

Once the sale is made, however, it is critical to ensure that our customers realize the full benefit of our systems. Currently in an initial test phase, our new service program is designed to offer a compelling value to the oil and gas service industry. The program involves regularly deploying our service teams throughout the year to help ensure our customers' burners are operating optimally while using our burner management technology. The program includes calculating customer-specific savings derived from the use of Profire's products and services, and help illustrate Profire's value to the customer. The preliminary results of this program are very encouraging, and the program represents one potential model for a recurring revenue stream.

The purpose of our service personnel is first to support successful product sales by ensuring successful installation and ongoing support of our products. Customer satisfaction is a core value at Profire, and is largely facilitated by our expert service team. The team's second purpose is to generate service revenues, potentially through a recurring model. Now, the accelerated growth of our service team, which is intended to more capably reach our growing network of customers, has had a slight impact on margin. But we consider this to be a short-term impact from growing our service team to reach our larger customer base, rather than a long-term trend.

Now, based on our strong second-quarter performance, we have increased our previously announced fiscal 2015 total revenues guidance, which was $46 million to $48 million. It is now $57 million to $59 million, which would represent a revenue increase of 61% to 67% over the previous year. We also expect our net income to increase to $8 million to $9.5 million, which would represent an increase of 43% to 69% over the previous year.

Now, with that, I would like to open the call up to questions.

Operator, would you please provide the appropriate instructions so that we can get the Q&A started?

(Operator Instructions). William Bremer, the Maxim Group.

Good evening, gentlemen. So I want to first start out -- a very nice topline growth, absolutely. Can you give us a sense of how many flare stacks or what the contribution of the flare stacks were this quarter?

It's hard to put a number on it. We've got initial sales -- some of those are being demoed in the field now, but we are sitting at about 200 units that have been sold. Those are primarily in Wyoming and Texas.

If I might add something there -- this is Brent -- I just came back from a trip to actually get out to the field and talk to the various customers out in the Wyoming area. And it was incredible, the interest in this product. They showed us any number of different flares out there where they had need of this. And the exciting part of that is they don't just need this new product, but in about 90% of the cases it comes attached with a Profire 2100, so we are actually making two sales every time we make one. But there is really phenomenal interest on the parts of the oil companies that I saw, at least, in Wyoming area.

Great, absolutely. Can you give us a sense of what the largest order you had during the quarter was?

We typically don't break those numbers out specifically. We just elected not to do that in prior Qs. And so as we've reported in prior 10-Ks, we've illustrated some of our major clients. But we don't do that on a quarterly basis.

Okay, not a problem. Maybe we can go to the shales. Which sales in particular are you having a tremendous demand in? And what are some of the ones that are a little lighter that you are currently seeing in this environment that we are having?

The obvious ones that we've had very strong revenue expansion would be the Marcellus, Permian, Eagle Ford. The DJ Basin in Eastern Colorado has been very strong for us. The Bakken is a little bit late, and we are just getting to that. And we feel that so many of the operators in that space are so busy with their own explorations, their own investment, with their own operational acceleration, that it's very, very difficult for them to sit down and think about safety and efficiency when they are simply just trying to put bodies in trucks and move their product.

So we believe the Bakken is a bit of a sleeping giant. But that's the one, if I had to categorize the different shale plays, that's the one that would be lagging. But it's not a function of opportunity or potential. It's a function of us, number one, getting to it; and, frankly, that speaks to the overall premise of the release that we just put out was we are in a very heavy investment phase. And part of that is getting the people in the right area, and the Bakken is an area we are focusing on heavily for future investment.

Okay. I'll turn it over. Thank you.

Rob Brown, Lake Street Capital Markets.

You mentioned Colorado being a driver. Could you give us some color on the impact of the new regulations, what you've seen in terms of new customer adoption and just the regulatory environment there?

Thanks for that question, Rob. The biggest driver, obviously, in Colorado is safety, with the auto ignition legislation that's there. Again, back to the same comment we made with Bill's comment, we don't necessarily identify individual companies there, but we have identified about 8 top-tier players. And they are names we worked with before. And we are in with two of those in a significant way right now, and we are working on the balance of those top-tier players.

Now, beyond that, let's remember that there are 30,000 current wells in Colorado with about 1800 new wells coming on every year. And so the opportunity for us, the sales opportunity increases by that much every year. There are about 30 lower-tier players that we are working with as well.

So what it does for us is it creates a conversation piece wherein we can go into those corporations and a couple things have been happening. One is, they have heard about the regulation and they are not sure what it means. They are trying to get clarity and remove the noise from what the auto ignition legislation is stating, how they comply with that. Or perhaps they are so busy drilling that they have not heard of it. And so we create that opportunity to have a conversation with them.

As you know, the registration states that by May 1 of 2016, any combustion device in Colorado needs to have an auto ignition system. So there's a bit of a lag there. But there's fairly hard stuff. As you know, in the oil and gas space, there will be those producers that will fight that, or will try to interpret what auto ignition means. They will see if the regulatory bodies actually have any teeth in penalties, if people aren't complying with this.

But from what we've heard is that if people aren't complying with the regulation and the best practices of having safe technology if it's available, that it will likely damage their permitting applications in the future submissions that they would have in the state.

So there's a bit of noise, but it creates a buzz for our salespeople. And Brent had mentioned earlier in the call that we have an OEM-focused salesperson now. We also have a corporate salesperson. And so they are taking more of a top-down approach, and Colorado is a fantastic example of that strategy.

Okay, great. That's good color. And you talked about oil price impact should be low. But have you seen any fall-off in the daily order pattern yet, at all? And I guess how do you -- what sort of the feedback you've gotten in the field from that question?

Rob, one of the things -- we've tracked this from the beginning of time, as it were, the 12 or 13 years we've been in existence. And when we first built the fluctuations years ago, we were really quite concerned. But one of the things that we found was that not only is there a huge market out there, and we have many, many wells yet to cover; but we found that when there's lots of money that is high oil prices, companies are quite willing to spend their money. But when things are a little bit tight, they start to focus more on efficiencies. And as such, they become very interested in what these products can do for them.

So typically, at least in years past, have seen little to no -- in fact no significant change in our growth patterns as prices have gone up and down. And some of those have been a lot more significant than what we are presently experiencing.

Rob, just to follow up on that point, to reiterate what Brent said, our revenue mix right now is about 60% legacy of retrofit and 40% new drill. And so if you look at the size of the market, what the retrofit market represents, it's a big number. We've seen estimates in the $1.3 million range for wells. So even if you discount that back, we still have a lot of people to talk to.

The second factor to think about, too, is that our products also work on natural gas. As you know, natural gas has been increasing lately. I think it was about 4.3 as of today. And so we are diversified against different energy sources and energy types. So, as you recall, the heating process of dehydration is something that Profire generates revenue from, as well. So we are somewhat diversified there.

But we feel that if you look at the oil deficit that the country is running, you're still looking at 8, 9, 10 million barrels a day that we have to import. And so the demand domestically is very strong and robust. And so we are pretty excited about the prospects with those factors.

Okay, great. And then in your service business, you said your test and trials are sort of through. How do you see that business upticking and ramping and rolling out into more of a formal business -- sort of timelines or the steps that would follow?

We should have, in coming weeks, or at the most a month or two, the definitive results from some of the specific testing that we are doing. But the initial test results are very significant as to what this preventative maintenance program can do for producers. What we have sensed is there is a great need and desire out there to have someone take this off the backs of the producers, from the producers. It has cost a great deal to set up their own programs for this. And the people who are experienced at it and efficient in handling this, who are really the experts in the arena, can do that. It's very helpful to them, and it improves their efficiencies tremendously as we tweak the equipment that they have.

The other factor in all of this, for us, that we've found, is that as we have the service people out doing these calls, they find equipment that could and should be replaced. And it leads to -- potentially, at least it has in Canada, as we've done this in previous years -- to significant sales increases as we get out there to do that. Similar to what your local service station will do if your car, offering you a 50 point check on the car, but they always manage to find about 16 things that need to be fixed, supposedly.

But we are a little more -- we try to be pretty honest about these things. But there's always equipment that needs to be replaced. So we see this as a real bonus, not just in terms of the revenues that can come in from service, but from the increased sales attached to it.

Okay. Great, thank you. I'll turn it over.

Jim McIlree, Chardan Capital.

First of all, very impressive results again. Can you talk a little bit about potential seasonality? Has this quarter benefited from seasonality, or the next couple of quarters might get hurt by seasonality?

That's a hard one to deal with. We have seen different things on different years in the past, Jim. Typically, half of the month of December is a write-off, the last half with Christmas, with vacations and so on. Depending on the companies we are working with and their budget timing, what we do find, though, is as they get close to that year-end, calendar year-end, in some cases they have spent their budgets, and so things drop off a little bit. In January 1, they pick up again for us.

Or in other cases, they are trying to spend budgets to make sure that they have sufficient in the budget next year again. So we find those increase. We will not know for sure until that time happens.

In terms of the weather and such that we had previously experienced when we were a smaller service company in Canada, there is what's called Spring Break up in Canada, where there is about a month where the oil fields essentially shuts down to service their equipment. But they can't use the roads and that sort of thing because of the thaws that are going on. As we have spread across North America, that has ceased to be a factor for us as we've averaged out. And so in terms of seasonality, we might see some things towards the end of the year, depending again on budgets. But, certainly, the holidays do affect it a little bit.

Great, thank you. And the guidance implies that the next couple of quarters are going to be about $15 million per quarter. Can you give us some feel for what might make that better, and what might make that worse? You seem to have eliminated the oil prices as a potential source of concern. But what's out there that might make the results better or worse than what the guidance is?

Jim, it's Andrew. What will make it better? I think if you have an increase in rhetoric as far as the regulatory tone, and that could be a federal issue or it could be a state issue. I think that could accelerate things. If you look at our past, though, let's just look historically. Our revenues have had a plateau effect. And those plateaus have been broken through, based on the lag of an investment. And so, for example, we flattened out a couple years ago in that $15 million to $16 million range, and then we broke out from that.

The same thing is happening here. We're just making a significant investment based on the capital that we raised this last summer, which now gives us the leeway to get out into those other shale plays in a significant way that Bill asked about earlier in the call. And so the way I would prefer to think about that is we're making investments now, and it's really a function of our execution. And we'll see those numbers show up in two or three quarters. And so we'll see that investment occur.

So what we are doing is we are looking at our own revenue model and then looking at historically how we've grown revenue. And it's a bit lumpy with that two- or three-quarter lag. And so what can go bad? I guess regulation can go away. And it could be a free-for-all, for example, in Colorado, if they were to rescind that regulation; the same thing in Canada. But those are things that have been in place, and it takes a bit of time for them to move the dial on getting regulations in place.

I think, if anything, you're going to see a tailwind to start fighting the battle of methane release and CO2; the war on CO2 and the safety around anything with combustion. And that's where we believe that this is headed, longer-term. And what I mean by that is in 3 to 5 years our biggest drivers will be largely environmental and regulatory. So if those were to go away, and I'm just kind of painting a doomsday scenario, then I think obviously that would hurt us in the short run.

But then as Brent mentioned before, the US market has largely been established on the economics and the payback period of the technology. And that's being further enlightened by the preventive maintenance model that Brent just touched on, is that we are starting to see those real numbers come back, so that the producers are able to calculate their rate of return on the technology and efficiency. So although the regulatory environment is a driver, we believe it's a looming gorilla, if you will, that's hanging out there again on the war with CO2.

Jim, if I might add, too -- Andrew touched on this. But one of the things, part of your question was: what would make revenues increase? What could bring it off this plateau? One of the things that is noteworthy is that 75% of our current sales and service people have been with us fewer than six months. And that typically -- it is usually in 6- to 9-month, even to one-year timeframe that we see them start to produce significantly.

So by the end of fiscal quarter four, we will certainly have any number of those people who are moving into that more productive range. And that could bump those things up. But in the conservative mode we tend to be in here at Profire, we don't want to start to bank on that.

Great. Thanks. And Brent, that leads into my last question. Could you just talk a little bit about the salespersons' productivity? And I'm thinking of it in two buckets. One would be the new guys being brought on board, I would assume are going to be less productive than the mature salespeople. But can you just characterize whether or not they've been more or less productive than you had initially expected?

And then, secondly, have you seen any diminution in the productivity of your existing salesforce as they help train and familiarize the new salesforce with the products and the territories? And that will be it for me. Thanks.

Good questions, Jim. No, we haven't seen anything diminish in -- as to those ones who are experienced. They keep producing and producing well, as they are helping the new ones learn. We also have a level of management, sales management now, that we haven't traditionally had to help train these people, so it isn't on the backs of the producing sales. So that's significant.

We don't see that -- let me back up. We do see that our inexperienced men are not producing the same as our experienced ones. And since so many of them are in that 3- to 6-months category, the numbers are down a bit. We expect a fully trained and productive salesman to sell in that $2 million to $3 million per year. And if so you run those numbers out, given that we are a year down the road, say, with the numbers of people that we have hired today, it will give you a bit of a sense of where we are at.

We have decreased the territories of these people, so there is possibly going to be a slight drop per salesman. But what we find is that -- and the reason that we've decreased the size of the territory, geographically, is so that they can more adequately cover all of the companies in the territory; whereas now they are just grabbing the few that they can get to, and really not covering all the companies that are there.

So we are quite optimistic that the numbers will stay the same, per sale guy, and even improve significantly as we get along, as we get the support of what Andrew mentioned, the salespeople that are going to work at the boardroom level at the government level, and start to effect the top-down selling, as well we will see the numbers go up, I think. Thanks, Jim.

Steve McManus, Sidoti and Company.

So my first question is regarding the progress with international distribution. Recently you announced the deal with UPC Global. Is this going to be a major focus, or just an add-on, and you guys are going to mainly continue to focus on the growth in the US, as now?

Steve, thanks for the question. It's Andrew. I don't want you to discount the international possibilities, because they are very significant. However, we have so much to do here domestically that we will look for opportunities that come to us. We are sort of in the metaphor of sports, we are letting the game come to us a little bit and looking for those fat pitch opportunities -- that we have a company, for example, a representative in Australia; there already in the oil and gas space. They have a nice distribution footprint. Obviously we have to train them and bring them up to speed. But it's not like starting from scratch. It's not like we are investing a tremendous amount of capital there, bricks and mortar and having a facility there.

Now, in the future somewhere, I don't want exclude that possibility. But right now, we are looking for opportunities again as they are teed up high for us, rather than going and forcing too much into that market because we have so much to do here in the United States. And our challenge isn't necessarily looking for growth opportunities; it is focusing on the ones that are the most meaningful right now. And so, and as we've stated before, we are in such a growth and expansion phase, with heavy investment, that we tend to want to focus on what's happening here.

If you see what's happening with natural gas -- and I know you watch this very closely -- in just the production in the United States, we have ample opportunities here, the Canadian market, Saskatchewan. It's an area we haven't done a lot of work in yet. And let's not forget the Alberta market. We continue to grow there, too. We are now hiring, expanding in our home territory, so to speak, in the Alberta market. So although that's in North America, we have so many opportunities here.

Now, you will probably see updates as we start to invest in talent and opportunities that could capture international markets. And so we haven't broken that out yet, because it's fairly -- as far as the contribution, it's not a big number yet. But you will see us work on it, but it won't be the main focus.

Okay. Great, thanks. That helps a lot, and kind of leads into my next question. So with respect to the expansion initiatives, obviously there's been a ramp up in personnel hiring as well as R&D. Is this expected to continue the next few quarters, or more of a focus on training the recently hired and building upon that?

This is Andrew again, and thanks for that. Our focus will be as long as there is a lot of greenfield to capture as far as revenue opportunities, we will invest aggressively. But we need to do that prudently. Remember where we came from. We were an organically focused finance business up until this last year, when we took the first external capital to grow this business. And so we still have that disciplined mindset. I don't want to pigeonhole us into a quarter number, so forgive me for that. But we will seize opportunities and grow, and invest in people and talent until we have the footprint that we are comfortable with, with our current product mix.

All right. Great. Thanks a lot, guys. I appreciate it.

Walter Ramsley, Walrus Partners.

It's a spectacular quarter, and things are looking good. Got a couple of questions about more the general market. You mentioned natural gas a couple of times. What share of the potential market would you say natural gas represents compared to oil, at least in America?

Well, again, it's going to be somewhat anecdotal because there aren't good numbers, because the number of wells are changing every day, and we don't specifically break out the difference between oil and natural gas.

But if we had to just handicap the opportunity, you are probably going to be looking at close to 60/40%: 60 for oil and 40 for natural gas, as it currently sits today. Now I think that you'll see, with the new drilling technologies, i.e. horizontal drilling and fracking, the associated gas -- meaning natural gas being a byproduct of searching for oil -- is about a 70/30 split. When you find oil, 30% of what comes up out of the ground, as far as an energy source, is natural gas. And so even though they're drilling for one particular energy source, you're going to get that byproduct. And so it's hard to break it out. But I would say somewhere in that 70/30 range.

Okay. That's great. And as far as your current sales go, do you think that's pretty much the split, 60/40 or 70/30? Or are you still moving in that direction?

It is probably more towards the 60/40. But, you know, that tends to ebb and flow a little bit, about where we focus regionally. And, again, we are coming off some small numbers. And so we are focusing on all the shale plays without any particular preference. Because the technology works in each area. Some of those are more gas-heavy and some are more oil-heavy. And so it will ebb and flow a little bit, but it's hard to really put a forecast on that number. (multiple speakers)

One of the things we find is that as companies start to use our product and really like our product, then they tend to use it universally across the board wherever they have. So you get a number of producers who are into both oil and gas. And so it tends to be more about the company than it is about whether it is oil or whether it is gas. They just use us across the board in many cases.

Okay. So as far as the margins to you guys go, is it pretty much the same whether it's oil or gas? Or is it a tougher sell to do the gas, or higher cost? Or what do you think about that?

The resulting market to us, Walter, are the same. They are really the same. And so it's hard to say as far as the impact, getting back to the commodity price issue. But we have written natural gas from as high as $9.00 down to $2.00, and now we are back to $4.50. Really the limiting factor is more about our execution and getting trained, talented technicians and salespeople in the field to demonstrate this value proposition. So it's more of an awareness issue really than anything to do with the particular commodity, whether it be natural gas or oil.

Okay. And I don't know if you have a guess, but what would you say your total market share is in America now? Still -- I don't even know what words to put in your mouth.

(laughter) There's two questions in your statement. One would be -- I would say market penetration for the entire niche. And as we stated on the call, we believe the entire niche as far as burner management technologies is well under 5%. So it could be 3% if you really were to lump in the entire niche together. Of that niche, we believe we are about 80% of the market share of what's been sold. And again, those are somewhat estimated, based on the reconnaissance we have from our salespeople and just conversations that we've had going forward. However, we feel that it's a tremendous opportunity, and it's a big greenfield out there to get after.

Sure. I don't know -- do you mind if I ask a few more questions? As far as your new products are concerned, is there any discussion that you can give us there as to how big of a leap forward that might be, and what the potential impacts could turn into?

Those are great questions. They are a tad leading for our preference; however, I think what you want to look, Walter, is our commitment to the R&D process. And so we are making significant investments financially in new product developments. And if you sort of read between the lines with what Brent said, smaller sales territories would imply that at some point in the future, there would be additional products to be sold across a smaller geographical area. So keep that in mind.

The second thing, too, is that we get all of our inputs from the market. And that's from the 28 salespeople and the 26 service people that we have out in the field that are meeting with clients all the time. And so they are getting feedback as far as what are the needs of the clients, what are their pain points, et cetera. And the flare stack ignition system is a perfect example of that process playing out.

Okay. I guess one last thing, the new channels that you are beginning to cultivate -- the OEMs, the government, large companies -- has there been any indication among those potential customers that they are the least bit interested in anybody other than Profire?

Again, it sounds a little bit like that's a question about the competitive forces or (multiple speakers)

Is there a significant competitor that you're starting to have to deal with, or not?

No. The biggest competitor we have is awareness. And so much of the time that we spend is creating a top-down awareness as to the value proposition of our technology.

For example, again as Brent had mentioned, we now have someone focusing just clearly on the government channel. And again, we were meeting with the Utah Energy Development Administrator about six weeks ago, and they didn't have much information about Profire. And that's right down the street. So you start to think about the top dozen oil and gas producing states in the country, that they perhaps don't understand because there's not a legislative hammer yet to push this along.

So we are looking at creating that awareness, creating education, and moving it forward on more of a top-down. Again, remember, we didn't have a marketing person either. And so we are now getting these things in place to where we are creating awareness and education as to the benefits of this, so that when it does become mandated, or if there is a safety issue, that these corporations and these local governments know who to go to for that expertise.

Okay. Anyway, congratulations again. You guys are like a blast from the past, with high growth and high profits all in the same package. So it's great. Thank you.

Thanks, Walter.

Thanks so much, Walter, and thank you everyone for joining us on this inaugural conference call. We would really like to express appreciation to all of our customers, to our employees, to our shareholders in particular for their support and encouragement as we've approached this marketplace, as we continue to make ourselves an industry leader here. So thank you very much for joining us today.

Again, I would like to remind everyone that this call will be available for replay through November 18, starting later this evening, via a link provided in today's press release as well as available in the Investors section of the company's website. Thank you, ladies and gentlemen, for joining us today for our presentation. You may now disconnect.