Profire Energy Inc (PFIE) 2015 Q4 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 year ended March 31, 2015. Joining us today is the President and CEO of Profire Energy, Brenton Hatch, and 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 anticipating the difficult industry environment having a significant impact on the Company in the near future; Profire Energy not allowing industry set back to derail the Company from long-term vision; the Company's readiness to pursue growth initiatives as the market improves; the Company focusing on maintaining cash levels while also making necessary investments; the possibility of the Company using its cash for acquisitions, new product launches, entering additional industries or other initiatives; the ability of recent product launches creating long-term value for the Company; the Company's chemical management system becoming a more significant part of the revenue stream; the Company's ability to timely remediate material weaknesses in internal control; the Company's future margin returning to historical levels; cost reduction efforts made by the Company leading to future operational or financial leverage; the R&D team's ability to modify current technology for other industrial applications; the Company's future performance relative to guidance discussed on this call; the Company's plan to be in more of a cost and operation steady state by Q2 of this fiscal year or oilfield purchasing improving in the last two quarters of the fiscal year.

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 it will be available for replay through June 22, 2015 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 call over to the President and Chief Executive Officer of Profire Energy, Mr. Brenton Hatch.

Thank you very much and good afternoon everyone. We appreciate you joining us today.

When we started Profire 13 years ago, I never imagined the Company would grow to over $50 million of annual revenue. I remember building our first systems in a garage curing the first circuit boards in a house oven and delivering our first products out of the back of my family car. As we grew, we slowly realized the potential that Profire had to change the oilfield and improve people's lives, customers, employees and shareholders alike. That vision has driven us for 13 years through difficult times in the industry, internal Company challenges and uncertainty.

We have experienced some amazing growth over the past couple of years and we are excited about what is ahead for the Company. That being said, we are still in the midst of a very difficult industry environment which is having and will continue to have a significant impact on the Company in the near future. Properly navigating through this short-term decline is a top priority of management but we will not allow this setback to derail us from our long-term vision of what Profire can become. This past year truly was amazing and we will work to build on the momentum established over the last two years.

Prior to the drastic decrease in oil prices, Profire was in an aggressive growth investment phase with the intent to expand quickly through North America. During fiscal 2015 in response to the market opportunities and needs, we opened up two new offices, one in Tioga, Pennsylvania and another in Greeley, Colorado. We were developing new sales and service territories, investing heavily in multiple R&D projects and building out our sales, service and marketing teams to foster growth.

In hindsight, the timing on these growth initiatives was unfortunate but given the significant market opportunity, Company resources and recent sales growth, we invest our time and resources to further create long-term Company value. We still feel that the market opportunity is very significant and we will be ready to pursue those growth initiatives again when the market improves.

During the year we also completed an equity raise in our second fiscal quarter which was to be used to fund the growth initiatives I just mentioned. However at this time, making those growth investments does not make financial sense when the market's purchasing has declined this significantly so the cash that we raise will ensure that the Company will have the cash reserves needed to help weather the current industry storm.

Cash maintenance is something very important to the company and we will be very cautious on how we use these funds. That being said, we still may make some investments that we feel will provide significant value in the short and long term. These may include acquisitions, new product launches entering into additional industries, and other initiatives.

In any event, we feel that with our cash reserves, wise cost management and a continued focus to remain debt-free, we are very well-positioned to weather this industry storm.

Additionally during the year, we expanded our product line in releasing the VM80 valve, the flare stack igniter and acquiring a chemical management system. We believe that these products will contribute to the long-term success of the Company and we are especially excited about the market potential of our Chemical Management System. We have now installed a number of these systems and have received some very positive feedback. For example, a producer on the East Coast recently reported that they realized a payback of about five weeks which is significant. We will rely on our sales and marketing teams to get this product off the ground and are confident that our CMS will become a more significant part of our revenue stream, even in the current fiscal year.

The growth that we experienced this year has not come without growing pains. At the end of our second fiscal quarter based on the market value of our public float, the Company was required to become an accelerated filer and also required to begin reporting relative to Section 404 of the Sarbanes-Oxley Act. As you saw in the Form 10-K that we filed today, although we implemented additional control such as new policies, systems and staff during the fiscal year, our internal assessment of our controls revealed that there were some material weaknesses and we did not fully meet the 404 Standard.

This is something that the Company management takes seriously and we have put an improvement plan into place to ensure that our future internal controls meet this standard. We are confident that we can remediate this issue in a timely manner. However notwithstanding these control issues, our financial statements have been given a clear opinion and both management and our independent auditor concluded our financials fairly represent our financial position, cash flows and operations.

Now while we know that there will be some turbulence in the short term we are confident that we can manage through this difficult industry time. We believe that we will look back on this current phase as a time for streamlining improvement and creativity. We are excited about all that was accomplished and we believe that we can build upon the success in the future.

Though before we talk too much about the future, I want to turn the call over to Andrew Limpert, our CFO, to discuss the financial results of the year. Andrew?

Thank you, Brent. Earlier today we filed our Form 10-K with the Securities and Exchange Commission and discussed the fiscal year highlights in a press release. Both of these are available on the investor section of our website. Overall this has been a great year for Profire and though the industry is facing some difficult headwinds, the Company is positioned to not only endure the downturn but is seeking opportunities to add value during this industry correction.

With that said, let's look at the financials and start with the income statement.

For the fiscal year ended March 31, 2015, our total revenues increased 45% over the prior fiscal year to $51.2 million. Increased production activities in the oil and gas industry for the first half of the fiscal year combined with our opening of multiple offices increased hiring of sales and service personnel and an expansion of our product line helped contribute to our increased sales especially in the US.

Our gross profit increase is $27.2 million or 53% of total revenues as compared to $20 million or 57% of total revenues in the prior year. The biggest drivers leading to the decrease in our gross profit percentage year-over-year were first, the increased allocation of overhead and depreciation to cost of goods sold derived from facility and fixed asset additions made during the year. Second, an increase in the service activity as a percentage of total revenues. And finally, a shift in product mix to more nonproprietary products.

In the short term we may experience a continued deleveraging effect derived from our lower revenue levels which we anticipate will remain slow until the latter end of fiscal 2016.

However over the long-term, the Company feels that higher revenues combined with operational improvements will help us regain more historical gross and net margin levels.

Total operating expenses increased to $18.7 million or 37% of total revenues from $11.4 million or 32% of total revenues in the prior year. With our growth focus during much of the fiscal year, the increased operational costs were expected. Although the timing of some of our growth investments was not fortuitous, we still expect to see returns from these investments over the long-term.

When compared with last year, operating expenses for R&D increased 161%. Payroll increased 53% and [appreciation] increased 102%. Much of the increased expense in R&D has been to expedite the introduction of our next-generation burner management system and to support our expanding product line. Additionally, the majority of expense increases we experienced in other operating expense line items related to the growth initiatives the Company pushed throughout the first three quarters of fiscal 2015.

These costs were realized as we expanded our facility space, opened news sales and service territories, implemented a new ERP system and completed our first-ever acquisition. We have worked hard in recent months to make necessary cost reductions and to find areas that we could better leverage moving forward.

The Company's income tax expense for the year as a percentage of net income before taxes was 33% compared to 35% in fiscal 2014. The year-over-year decrease is primarily attributable to certain tax planning efforts made by the Company. As you may have noticed, the income tax expense in Q4 was significant as a percentage of net income before taxes because we completed the fiscal 2015 taxes after year end and finalized the tax expense for this fiscal year.

You may recall from our last call that we completed our fiscal 2014 tax filing during our third quarter and trued up the deferred tax asset and liability accounts dating back to fiscal 2014. We performed the same process for fiscal 2015 after year end and realized an increase in our tax expense during our fourth quarter. As we stated on our last call, we estimate an average tax rate of about 30% to be more representative of what we expect in future periods especially as we improve our tax management.

Our net income was $5.7 million or $0.11 per diluted share compared to net income of $5.6 million or $0.12 per diluted share in the prior year. Cash and cash equivalents totaled $14.1 million at March 31, 2015 as compared to $4.5 million in the year-ago period, the increase being largely attributable to the equity raise completed during our second fiscal quarter.

For context as of the middle of last week we had about $18.1 million in cash which is a great benefit in the Company and opens up a number of options moving forward.

Before I turn the call back to Brent for some final thoughts, I want to address a couple of items. As stated in the press release the Company put out last month, I will be moving on as CFO effective today, June 15. However, I will be available to the Company to advise and help with matters where I can add value until the replacement has been solidified.

I wanted to make it clear that my reason for leaving is not because I no longer believe in Profire but rather I am moving forward with another opportunity that more accurately fits my skill set and also the time demands on my family.

The last eight years I've been associated with the Company have been very rewarding and a very exciting experience and I am confident that management and the Board will find a qualified replacement that can help take Profire to the next level and ensure that the Company is well-positioned in both the short and long term.

I also want to take a second to thank many of you on the call today who have supported Profire over the years. Many of you have followed the Company for a number of years and we are grateful for your support. Personally I appreciate the friendships and the relationships that I have built with many of you and hope that those continue past my time with Profire. Thanks, everyone.

Now with that, let's turn the call back over to Brent for some final comments.

Thank you, Andrew. I want to take a second to publicly thank Andrew for his years of service to Profire. He has been immensely influential in helping grow the Company out of its infancy. We would not be the Company we are today without Andrew and his contributions. Andrew, we wish you well in your next adventure.

On that note, the search for a new CFO is ongoing. We have been working with the Board to identify candidates to fill this position and help lead Profire into the future. We have interviewed several candidates and hope to announce a replacement within the next month or two. This candidate will most certainly be someone who has significant experience as a leader with a public company and in whom we have confidence in leading our finance and accounting departments.

Looking towards the future, we believe we are well-positioned to handle the industry volatility and be ready to grow again on the other side. For us, we feel that it is not a question of whether or not we will make it through the industry storm, it is more a question of how capably we will manage the process and how much we learn and how much strategic positioning we can do in the coming quarters.

We have no debt. In the past, we have taken criticism for having no debt but it is times like these that a company benefits significantly from avoiding debt service.

As Andrew highlighted, we currently have significant cash reserves of about $18.1 million in the bank. This cash could allow us to pursue opportunities that other companies may not be able to pursue or make investments that will better the future of the Company. Additionally, this industry downturn has shown us much more than previous downturns, I will add, that there is an element of commodity correlation to our business even though our technology does enhance the safety, the efficiency and the compliance of end users. We will work with our R&D team to make modifications to our current technology that we hope to be able to potentially enter additional industries and applications such as agriculture, pulp and paper, industrial boilers or forced air applications in the oil and gas industry in the long term.

Though we know the market we are currently in is a great opportunity and will still be our main focus, diversifying our revenue stream away from just one industry will allow the Company to be less tied to commodity prices and enable us to be positioned as a technology company that has several industrial applications. Though these R&D projects are likely still a few quarters away from completion, we believe that over the long-term entering other industrial applications will have many benefits. If it made sense, we would also look at acquiring our way into one of the industrial applications I just mentioned.

As far as our fiscal 2016 guidance goes, we are guiding for total revenues between $25 million and $30 million with net income of negative $1.0 million to positive $2.0 million. One of the biggest challenges that we face is the lack of visibility into sales in short term.. So while we anticipate the long-term opportunity to be significant and while we are hopeful the latter quarters of the fiscal year will present a better sales environment than the beginning quarters, we expect the first two quarters of fiscal 2016 will be very difficult for the Company.

The focus for us will be cash maintenance over the next couple of quarters with Q1 being very difficult as we continue to make necessary cost reductions. Given the significant Company changes in the last six months, we are planning to be in more of a cost and operation steady-state by Q2 of this fiscal year. Additionally, we anticipate that purchasing activity during the third and fourth quarters will begin to pick up and we will be able to leverage some operation efficiencies created during Q1 and Q2.

We are optimistic that by the end of fiscal 2016 things will look brighter, more efficient and hopeful than many feel they do today. We remain confident about the long-term opportunities of the Company and our ability to strategically direct the Company in the future. Again, our history as a Company is primarily one of significant gross and net margin, significant growth and of course no debt. We feel we can manage the coming quarters to ensure that such remains the case in the long term.

Now with that, I would like to open the call up to questions. Operator, would you please provide the appropriate instruction so that we can get the Q&A started?

(Operator Instructions). Rob Brown, Lake Street Capital Markets.

Good afternoon. You talked about obviously near-term visibility is not great but what really are you seeing in terms of the near-term trends? What are customers saying? Are they holding back pretty heavily right now? Are they kind of wait and see mode? Have they said things will get better at some point? What is sort of the latest you are hearing from customers about trends?

Good question. One of the big concerns we had earlier in the year, the previous quarter was that we were hearing nothing. The companies had simply shut down in terms of both their CapEx and OpEx budgets and were really saying nothing. The reason your question is interesting is so much has changed in just this last few weeks. We find significant interest from a number of companies in starting to talk again about the possibilities for the future, some of them saying -- projecting a five-year approach and saying that some of their purchasing will be loaded down the line a bit that it will be light on the front-end and a little heavier as we go further. But even in more recent weeks, we have people talking specific possibilities of purchasing again which is very new. We have many people who are saying please don't forget us, we are bound by budgets. But finally, we are starting to see some budgets in our companies and will be able to start to make moves soon.

So it is really very optimistic this last few weeks whereas for a while we just were hearing nothing at all, Rob.

Okay, I presume your guidance implies that the June quarter number steps out significantly from your March run rate. Is that right?

I'm sorry. I missed the f0irst part of your comment.

Just trying to understand what the June revenue run rate would be at least by my numbers it looks like it steps down from the March quarter and I am just wondering how much decline do you expect in this quarter sequentially?

I wish we knew. This is the hardest time in the Company's history in terms of projecting the future. We are optimistic because of what has happened with oil prices, there has been a leveling out. We are optimistic because of the increased talk as I mentioned with the field operators who are now saying the possibilities are coming.

But we don't want to sugarcoat anything, Rob, and we really don't want to make it sound like it is better than it is. Things are tight, budgets have been cut and not just capital budgets but operating budgets and although we are seeing a move away from that again which is very positive, we can't be overly optimistic about this first quarter or two.

Rob, it is Andrew. Thanks for your question. I think if we just look at the math, look at the arithmetic on the guidance and what we have implied in the call is that we think things will get better in the second half of the fiscal year. So your assumption and your instinct I think is similar to what we are feeling is it is just so hard to tell what these first couple of quarters are going to hold. But if you just do the math here, if you could be on average for the year you could be $6 million, $7 million a quarter at the $24 million to $30 million. I do feel just again that we can bear some of that earlier versus later is what our sense is. So you can come up with a number that you think makes sense but use that range of revenue guidance as your starting point.

Okay, that is helpful. Last question on kind of the service margin numbers and your margins in general, do you expect them to stay at a lower level here or do you think you can get some recovery throughout the year on that?

We anticipate some recovery. One of the things that we have done and we have indicated this in some of our previous comments but we have been cutting costs as deeply as we can to try to improve the margins as we go along. We anticipate as we get these things into line as we want them that as we get increased revenues then the margins we will continue to improve significantly.

So things such as stock options and insurance and R&D, professional fees, headcount numbers being down, depreciation being worked on, those things are all going to affect us in terms of margins in the future and as we bring those down and then start to build our revenues, we expect margins to go up significantly.

Okay, thank you. I will turn it over.

William Bremer, Maxim Group

Good evening, gentlemen. First and foremost, Andrew, a pleasure working with you. I'd like to start off with just a little more granularity in terms of what you are -- what was say the largest order that you received in this fourth quarter?

I don't know that I can tell you that specifically, Bill. I don't know that I have that number available to me right now.

Or better yet, how was -- are you able to hold your pricing here? We did have sequential declines on both the good side as well as the service side primarily let's stay with the good side. That was down but what are you seeing currently in terms of the bookings right now? Is pricing holding at these reduced levels or do you think it could have even further weakness to go?

We don't anticipate a lot of weakness to go. We think we have hit the worst of it over this last quarter plus. It hasn't been easy with no budgets being declared by the Company. But what we find is they are already as I expressed earlier to Rob, they are now starting to talk in terms of establishing their budgets and we anticipate it only getting better from here.

Brent, in your remarks you mentioned one of the reasons for margins coming back here was a shift towards more nonproprietary products. Can you go a little more granular there and explain that?

Yes, typically what we have had to do, Bill, is we would have our proprietary product, the 2100, but often with that the companies would request us to come in with fuel management systems, valve trains we called them and so many times we were out buying valves and such from other companies. We are working, our R&D department has been working hard at coming up with products of our own that are proprietary products so that we aren't having to reach out to other companies. Obviously when you buy from a third party, your margin may go down from our 60% or 70% that we are used to on proprietary products down in the 25% or 30% range. And so we are working to get away from those and bring more proprietary products on.

Brent, can you provide the current numbers of sales personnel as well as service personnel and really what shales are you targeting at this point?

We have about 21 salespeople and about 19 service people and you are asking -- the other part of the question was what?

What shales are you targeting?

We find that Texas now has become a real hotbed for these E&Ps. We attended a conference quite recently of all of the big E&P companies and most of them were talking the Permian and Eagle Ford as being their primary areas of focus for them. That shouldn't suggest that these others are dead at all. We find that the East Pennsylvania area is very good for us, continues to be and we believe will continue to be but certainly the Texas regions seem to be the hotbeds right now.

And one last me for me, Brent, if I may. Can you give us a sense of where you are targeting your total operating expenses for fiscal 2016? You closed at $18.7 million for 2015. I know you are restructuring. How much of a pull back and give us a sense of how you are going to right size the expenses here.

We are certainly pulling back but we are shooting for the number of about $4 million per quarter and we think that that will more than adequately take us to a position where we are not having to spend cash that we want to keep available for other possibilities.

Okay, so about a 15% pullback overall on expenses. That is what you are targeting?

About that. It could get better than that. We are certainly working towards that. We are finding a number of efficiencies. As we drill into these things, we are finding a number of areas where being very optimistic of course last fall and even having done the raise last summer so that we could get into significant growth, we are into that growth mode. And so we are having to cut back from that and get into a maintenance mode for awhile and so we are finding some areas that we really can do some good things there in terms of cost cutting.

Okay, Brent. Thank you. I will hand it off. I appreciate your time.

Good to talk to you.

Jim McIlree, Chardan Capital.

Great, thanks. Good afternoon and, Andrew, good luck with everything and it has been a real pleasure to work with you. So thanks for everything.

On the OpEx question that Bill was just asking about, I want to make sure I am hearing that right so you are targeting $4 million of OpEx in a quarter and do you think you would achieve that in Q1 or is it going to take you until Q2 to get there?

I would guess probably Q2 would be more logical on that one. We are targeting 4, we think that we can possibly beat that, Jim, but that is kind of where we feel that we would be in safe territory of not burning cash.

Okay. And the gross margin expectation that you have in 2016, can you help me understand where you're thinking gross margins come out in order to get that breakeven kind of GAAP results?

We are anticipating mid to high 40s on that gross margin.

And that is a function of the price pressure as well as you thinking there is a greater mix of the nonproprietary products or is there something else going on?

No, that would be mostly it.

Okay. I think that is all I have. Thanks a lot.

Thank you, Jim.

Steve McManus, Sidoti & Company.

Thanks for taking my questions. I guess my first question, on the last call you guys had mentioned you were in the early phase of testing a leasing model. I just wanted to see if there was any progress with respect to that or is it still relatively early stages?

I wouldn't say early stages. We have definitely made progress on that, Steve. We are quite anxious to see what that might do for us. We in fact are talking to companies. Again for a while as I mentioned to you, we weren't able to talk to companies because they weren't talking, there simply was no communication when there was no budgets and they were very closed. Now that is not the case and so we are testing out the possibilities of this with different companies and it seems quite favorable.

Are we there yet? No, but I would anticipate, Steve, that by summer we ought to be in a position to plug this in and see how it works.

One of the things that we initially thought that this would be a CapEx issue dealing with these companies but we found that it covered all their budgets including operating budgets and now those seem to be freeing up a little bit again and they seem a little more anxious to talk these sorts of things with us. But we are definitely in process of that.

Okay, great. As you guys are kind of entering a maintenance phase, can you give us an idea of the expected capital spending for fiscal 2016?

Steve, it is Andrew. It is not going to be very much. We have tried to whittle that down. I think it is going to be sub $1 million. We have the equipment that we need, we have the properties that we need. If anything we are trying to go the other direction. And so the PP&E, we might be a little heavy on that actually right now from the investment that we did last summer and fall. And so again, this may change as I won't be here. But from what we have looked at, we are going to try to keep that under $1 million.

Steve McManus

Okay and then the last one, you mentioned within some of the cost cuts, R&D kind of paring back. Can you give us an idea of what you guys are expecting the next couple of quarters?

You bet. One of the concerns is that we didn't want to be bringing out new exciting products as we see them at a time when the market couldn't accept them because there were no budgets out there. It would have nothing to do with the quality of the product. It simply was that there was no money available to purchase. So we will be watching this carefully. We pared back not so much on what the products will be but on when we will approach the market with those products. So we are still working on things but we have slowed down a little to fit the market trends now.

Steve, it is Andrew. Another way you may want to think about the answer to that question is look at the CMS which was an acquisition of technology and that is really an investment in a form of R&D frankly. It gave us an expanded product line with comparable margins in an adjacent technology that made a lot of sense for us at the time.

Now the ramp is going a little bit tougher than we had hoped simply because of the nature of the market right now. Not a lot of folks are wanting to look at that but I think in some ways you can look at the acquisition of the CMS line as an extension of our R&D department.

Okay, great. Thanks a lot guys and, Andrew, all of the best.

Rudy Hokanson, Barrington Research.

Thank you. First, Andrew, best of luck. It was a pleasure to meet you.

I wanted to ask two questions. One is more of a looking just on the fourth quarter if you could explain again please what happened with the taxes? If there is a particular footnote in the 10-K, you can just point it to me but I was just trying to understand that, it was hard to hear with the way that the sound was going in the call.

As you know, our fiscal year and our calendar year are staggered, our reporting period. So the actual tax burden came in a bit higher than we had anticipated as we were accruing that expense over the course of the year. And so if you break down the numbers, we had operating income of around $100,000, about $109,000 but we had a tax burden at the end of the year of -- I think it was 525 is where it came out for the year.

So it was more of a truing up and I know that makes it very difficult for analysts to model. It is just sort of part of the fun that we have with our offset year with our fiscal year being staggered like that but that is essentially what happened is the actual tax liability came in higher than we had accrued for.

Okay, thank you. Then on the issue of -- this is maybe more conceptual but it is also practical. As your customers are working on their budgets and you have sort of alluded to this in a few of your comments, how do your salespeople go in and make a pitch if somebody doesn't even know they have any money to spend, what are your sales people doing right now so that when the time does come they might be able to get traction sooner?

Really good question. One of the things that we have done is we started to approach other levels. The people that are most affected by the budgets are of course downstream the furthest in terms of the company. So the field operator has the toughest decision, toughest responsibility in terms of making these kind of decisions. He can't.

So we have been approaching mid-management at a different level. We have some of our sales people assigned specifically to work with those companies at that level. One of the other things that we have done, Rudy, is to approach the areas that are most relevant to them now. We met with an E&P CEO the other day, not too long ago and he said one of the three highest areas of expense for him were chemicals. And so taking from that we have started to focus a lot on that chemical management system that we have and we find that there is a lot of interest bringing up just in recent weeks over that as they see that they can have significant cost savings by the possibility of purchasing and installing some of those systems.

So we are focusing on the areas that seem to work, that seem to be most attractive to them at whatever level but approaching the OEM companies and the management at a little higher level where they can make some decisions relative to safety and things which in an environment which never go away regardless of where pricing is, they can factor this in at that level at those senior levels.

Rudy, it is Andrew. I've got a couple of comments there. A couple of things to think about is we have two environments particularly Utah and Colorado where safety and auto emission system is required. It is just the time to enforcement and so the conversation is a bit different when you walk into offices in Colorado or Utah because they know that this is looming. Now enforceability and timing of that, those are questions we are not so sure about. But in those areas, we still have a lot of active conversation even if there is not money to be spent today on it. It might be something that they will invest in several quarters or maybe a year from now and as you recall, a year from this summer, the Colorado regulations will go into effect.

Now whether they will be enforced or not we will see. So in 18 months from now, the same thing happens in Utah. So those are somewhat different environments perhaps than just people that don't understand the urgency so that is the first thing.

The second thing I would suggest that our salespeople are taking on less of a transactional type of relationship and more of a long-term relationship where they are empowering and educating these end-users on ways that they can actually enhance their margins. Brent mentioned that earlier. Their margins are in a different place now with the price of oil coming down, that being a variable they can't control.

So as we now spend more time empowering these folks as to how do we enhance the margins by cutting the amount of fuel gas that is being run through your well, things of that nature, what does that mean? If we quantify that, what does that look like? And so perhaps the results of these efforts will be longer-term but we are still planting seeds and as you know it is the law of the harvest. We don't know exactly when those will come back to bear fruit. It might be this quarter, it might be in 18 months but with a relationship perspective versus a transactional perspective, we are creating those deep ties.

If I could just add to that what Andrew just said, we are finding a number of people approaching our salespeople, a number of these company people saying don't forget us, don't give up on us, we have been bound by this budget problem but we still want to talk, it is still going to happen so don't quit on us. There is that longer-term view already amongst these people we work with.

Okay, thank you very much. Those are my questions.

Walter Ramsley, Walrus Partners.

Thank you. Congratulations. That was I would say a pretty good quarter all things considered. Actually the OPEC call them what you want, sons of guns, they crashed the market back in October and the price of oil was I think lower in the March quarter than it is now. How did the Company manage to generate as many sales as it did, $9.9 million?

I would like to say it was all the CEO but we have to give the CFO a few --. It has been a challenge for us, Walter. Our sales team is really quite amazing. We hired them some time ago as you know most of them. We brought a few on more recently but it takes a while for them to get a grasp of what this is really all about and what can happen with the Company.

As Andrew was just saying earlier, by talking to these companies about what this really can do for them, not just at present but in the future, they went out and they did this and we think that we benefited somewhat from that in this past quarter that they sowed the seeds back earlier on in the last year.

We also know that in some cases there was some drilling going on in January, February, March because of contracts that were entered into last fall with the E&Ps and when there is drilling generally that is a little bit better for us. So again, we benefited a little bit from that that they carried on through into a pretty weak time that there was still some of that going on.

So thank you for the comment. It was hard work and we really have to give credit to our sales management, our sales team as individuals and to all the others here who have helped us cut costs. It has been an interesting time around Profire.

So in the March quarter, did the sales on a monthly basis peak in January and then decline in February and decline further in March?

They started to decline a little bit I would guess toward the end but it wasn't significant. We have definitely seen them dropping off though for sure.

So what would you say happened in April or in the first quarter in general that is different than what you ran into in the March quarter?

Well, we really were caught, April and May more of an extension of this process of dropping down from not having these contracts that were happening and the cutting of all of the budgets. And so we definitely worked pretty hard in those months to keep things at the levels that we wanted to but it has been a real challenge for us this quarter. And now of course as I said, we see optimism filtering in that we haven't seen for a number of months now and we anticipate going forward that things will just continue to get better now.

Okay. So just in general, can you characterize what the split in sales has been between the oil market and the natural gas market or has it been tilting from one to the other or has it kind of maintained the same?

I don't think we have seen a lot of change in that regard. I think it has been pretty much the same as it has been historically.

And the division between the new drilling sales to the new rigs and the retrofit market, has that changed?

It has certainly picked up for retrofits. The new drills are almost nonexistent now and so where they have to maintain certain numbers of wells, it is essential for them. It has moved a little more that way as it has historically done. We have seen this in years past when there was a slump in prices so we definitely have noticed that now.

Okay. I don't if you want to get into it but I would curious to hear your thoughts on the kind of bigger picture and what the cost curve may look like for the fracking industry in general. Before the OPEC launched their attack, the breakeven price was supposedly $75 or something like that. There has been a lot of talk how the industry is working day and night to bring those costs down and do you have any thoughts about how they are doing and where it is going to wind up?

You bet and this comes mostly from talking to the larger companies but it has been interesting to listen to them as they have talked about how much they have been able to cut their costs often on the back of service companies like ours. But they are down 20% to 25% some of them are saying in terms of their actual operating costs which means that they can make money at $45. And I am now thinking of a couple of them that have talked to me that have said they can make money at $45 where it used to take them $60.

And so I think we are going to reap the benefits of that. They are not going to rush back and take themselves back to old levels but where they have cut costs so significantly, they now can make money and in Canada for example, we have had two or three different companies tell us that they were going to start drilling pretty soon. So for us that is great news. It signals some optimism that we haven't seen as I said for a couple of quarters.

And, Andrew, this is probably the last question I will ever ask you but who is going to do the books now that you are leaving? Who do I call?

As you know, we have got Shaun Larsen who is our Controller who you can certainly call him and we have a good finance team here with Nate and Tanner. I know that they are working on a CFO, someone who can pick this up and continue to move along.

It is funny that you asked that question because I sit here and I will be in your shoes in about 30 minutes. I will be a shareholder and I won't have any more influence on the business other than if Brent or the Board would like to visit and pick my brain about things. But the thing that brings me some comfort is the way that the balance sheet has been constructed and we raised that capital last year in anticipation of oil continuing to do its thing. But if you look at just the ratio between the equity versus our payables, you are looking at about a 20 to 1 ratio and I think we are in pretty good shape and that gives me some comfort as I am still the third-largest shareholder here.

I will be on the other side of the table and so I am looking at that thinking a good CFO can come in and inherit a good balance sheet with an exciting product that perhaps has just had a bit of a hiccup here as it has taken its first major blow of the commodity cycles. And this has been a particularly violent one as you have talked about before with global type of implications, not just local supply and demand issues.

And so as I think about all of that, I think the business is positioned well. Now that doesn't mean things will continue or maybe they will even get better but I guess time will tell and I will be listening to these calls just like you will be but that person I know they have talked to two or three people, I have interviewed one of those and I feel very confident about that particular person but it will be up to Brent and the Board to make the final call.

Andrew, you did a wonderful job. Good luck in the future.

At this time this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Hatch.

Thanks everyone for joining us today on this 2015 conference call. Once again I want to publicly thank Andrew for all of his contributions to Profire and to us as individuals here and wish him the best with his future endeavors. We are excited to see what he can do and will do.

We would like to thank all of our loyal customers, our employees and all of our shareholders for their continued support and encouragement. Please know that we are as always available to shareholders to discuss any questions or concerns you may have. Feel free to contact me personally or Mr. Nate McBride or anyone that you feel inclined to. But feel free to call me directly. We are always happy to discuss matters with you.

Thank you very much. Have a great day, everyone.

Again I would like to remind everyone that this call will be available for replay through June 22, 2015, starting later this evening via the link provided in today's press release as well as available in the investor section of the Company's website.

Thank you for joining us for today's presentation. You may now disconnect.