Profire Energy Inc (PFIE) 2016 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, 2016. Joining us today is the President and CEO of Profire Energy Brenton Hatch and CFO Ryan Oviatt.

Before we begin today's call I would like to take a moment to read the Company's Safe Harbor statement. Statements made during this call that are not historical are forward-looking statements. This call contains forward-looking statements including but not limited to statements regarding the Company's focusing on reducing expenses, improving operational processes and making necessary investments; the Company's new burner management system, the 3100; the product's ability to give the Company access to new markets and future growth; the Company's belief that the strength of its balance sheet will support the Company through this difficult industry environment; the Company's belief that low oil prices and lack of drilling and well completions impacts the Company's ability to capture revenue; the Company's ability to leverage its current investments into revenues in future periods; the Company's ability to improve treasury management; the Company's ability to maximize efficiency and reduce unnecessary expenses in future periods; the Company's ability to execute on its capital allocation plan as outlined; the Company's ability to effectively manage cost and create a cost structure with greater leverage in future periods; the Company's intent to repurchase up to $2 million worth of the Company's common stock; and the Company's ability to employee capital to generate meaningful returns; and the Company's intention to have its CTO bring product to new markets and more aggressively pursue potential M&A activity ultimately driving long-term value for the Company.

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 21 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 the remarks by Mr. Hatch and Mr. Oviatt, we will open the call to your questions. As part of the question-and-answer session Mssrs. Hatch and Oviatt will be joined by Profire Energy's VP of Sales Cameron Tidball.

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

Thank you very much. Good day, everyone, and thanks for joining us for our fiscal 2016 conference call. I remember this same time last year preparing for this call where we once again had record revenues and though oil prices were falling we didn't foresee the severity of the industry turbulence we experienced in fiscal 2016.

Frankly, as you all know, it's been a tough year for Profire. As with all other companies in our industry customers just haven't had the budget to spend and each sale has been difficult to capture. However, when we look at the big picture we feel that our performance relative to the industry and our peers is evidence of management's ability to steer the Company in the right direction and position ourselves to manage the storm well.

Prior to this year the Company experienced incredible growth which we believe we can recapture over time. We're excited about what is ahead for Profire. While a difficult year financially this has still been a year of progress for us.

We were slightly better than breakeven which we are not satisfied with. However, we did add a significant amount of cash to the bank. We have a substantial cash reserve and we are focused on how to employ that capital to protect the Company and deliver long-term value to shareholders.

Additionally, we completed and announced the PF3100, our new combustion controller, which we believe will add significant value in the coming years for the Company. We have already seen its impact for customers, though on a small scale, and are confident we can extend the capabilities of this product, enabling us to branch out to other industries.

During the year, we also hired a new CFO who has helped the Company make many positive changes including impressive cost reductions and cost management during these challenging times. This year we also expanded our customer base significantly and though the dollar value of orders from customers has decreased, the number of customers we work with is at an all-time high.

We are confident that this will serve us very well as budgets loosen up and the economics make sense for these E&Ps to begin completing wells again. We hope you sense the vision we have for the coming years at Profire.

We've gone to great lengths to reduce overall cost of Profire and feel that we have been very effective in these efforts. Our management team has been forced to make many difficult decisions involving Company personnel, required job functions, areas to scale back and projects to put on hold.

Our employees have been resilient and because of them we believe that we could bounce back quickly as the market improves. Profire and its employees have made concerted efforts to cut back unnecessary travel, reduce employee meals, decreased the number of and dollars spent on third-party professional service firms we engage with and much more. We have wonderful employees who have been critical to our historical success and who will be even more influential as we look to grow again.

All that said, we are still in the midst of a very difficult industry environment which is having, and we anticipate will continue to have, a significant impact on the Company in the near future. Properly navigating this environment continues to be a top priority of management but we will not allow this setback to derail us from our long-term vision of what Profire can be. We will continue to focus on the areas of the business we can control such as making internal process improvements, strengthening our treasury management, bolstering our internal controls and building relationships with both customers and vendors which we believe will fortify the Company in the long run.

Within the past few weeks we have made some significant announcements, specifically the Board authorization to conduct a stock repurchase program and the shift in roles for one of our founders Harold Albert who has transitioned from the COO role to the CTO role. We believe that this program and role change will be beneficial for the Company and will help drive the long-term growth for Profire and deliver value to shareholders. I will speak to both of these items in more detail a little bit later on the call.

Now while we know that there will be some turbulence in the industry for the short term, we are confident that we can manage through it. Low prices combined with the lack of drilling and well completions are a real issue for our ability to capture revenue, especially in the most recent quarters.

In spite of the difficulties we are working towards building the Company to be more commodity price resilient while remaining focused on our core competencies. We believe we will look back on this current phase as a time for streamlining improvement and creativity. We are excited about all we have accomplished and believe that we can build upon our success in the future.

With that I want to turn the call over to Ryan Oviatt, our CFO, to discuss the financial results of the year. Ryan?

Thanks, Brent. Yesterday after the market closed we filed our Form 10-K with the SEC and summarized the results of the period ended March 31, 2016 in a press release. Both of these are available on our investor section of our website.

Overall this has been a solid year for Profire. And though the industry is facing some difficult headwinds the Company's position to not only endure the downturn but is seeking opportunities to add value during the industry correction.

With that said, let's get into the financials and start with the income statement. For the fiscal year ended March 31, 2016, our total revenues decreased 47% compared to the prior fiscal year to $27.1 million. Decreased production and capital investment activity in the oil and gas industry was the primary factor in our decreased sales.

We will continue to focus on developing new products, diversifying into new markets and industries and enhancing our marketing and sales efforts with key customers and prospects. We anticipate as we do so sales can stabilize in the short term and we will be able to increase revenues and revenue stability over the long term.

Our gross profit decreased to $13.6 million or 50% of total revenues as compared to $27.2 million or 53% 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 the facility and fixed asset additions made during the prior year; second, an increase in service activity as a percentage of total revenue; and finally, a shift in product mix.

In the short term we may experience a continued deleveraging effect derived from our lower revenue level which we anticipate will remain challenged until later this year. Gross margin may fluctuate period to period due to a number of factors including product mix, revenue level, service margin and others. We will continue working with our suppliers to reduce the cost of products we sell in order to deliver further value to our customers and shareholders.

Total operating expenses decreased to $13.7 million or 51% of total revenues from $18.7 million or 37% of total revenues in the prior year. The Company has been successful in its expense-reduction measures and will continue to work towards maximizing efficiency and eliminating unnecessary costs wherever possible. We hope that each of you has seen over the past year how committed the management team is to this cost reduction effort.

As we make decisions to implement the long-term goals of the Company we anticipate making strategic investments for the long-term benefit of Profire. When compared with last year operating expenses for general and administrative decreased 25%, R&D decreased 51% and appreciation decreased 7%. We will continue to closely evaluate all expenses and determine what actions, if any, need to be taken as we've positioned the Company for future success.

Total other income during the period was approximately $200,000, the majority of which was attributable to the effective exchange rates on intercompany transactions. Because of our exposure to foreign currency exchange rates due to our operations across the Canadian border the Company will continue to be impacted by foreign exchange fluctuations in future periods, though we are evaluating ways to reduce this exposure. Our effective tax rate for the year as a percentage of net income before taxes was 79% compared to 33% in fiscal 2015.

The year-over-year increase is primarily attributable to certain deferred tax items magnified by lower income before tax levels. Net income was approximately $35,000 or zero cents per diluted share compared to net income of $5.7 million or $0.11 per diluted share in the prior year. We continue to maintain a strong balance sheet with zero debt.

Cash and cash equivalents totaled $21.3 million at March 31, 2016 as compared to $14.1 million a year ago. We are pleased with the Company's ability to continue to generate cash from our operating activities which will continue to be a focus of the Company in future periods.

As you probably noticed, and as Brent noted earlier, Profire received authorization from the Board to conduct a stock repurchase program of up to $2 million worth of Company stock. We believe this will be most beneficial to the Company and its shareholders, especially if it can be accomplished with operational cash flow without using much of the current cash on the balance sheet. However, this will be dictated by industry conditions over the next 12 months.

We have experienced working capital improvements as both the accounts receivable and inventory balances are down from prior year-end and we remain focused on bringing the inventory balance down even further over time. We will continue to strategically allocate capital in the preservation of cash, potential investments in acquiring adjacent technologies, conducting our stock repurchase program and other opportunities. We believe this plan will ultimately drive long-term value for Profire and our shareholders.

Before I send it back to Brent I want to touch on a couple of final items related to expected expenses in fiscal year 2017. To shed a little more light on our cost strategy we believe that we are at a fairly stable expense run rate and have been for the last month or so. As we look to the first quarter of fiscal 2017 we should have a clear picture of what expense levels will be for the next couple of periods.

We are not at bare-bones but we do believe we are at an expense level commensurate to what we anticipate will be a better second half of fiscal 2017. If for some reason customer purchasing does not improve in the second half of fiscal 2017 we will have to look at further cost reductions.

Additionally, we believe the cost and Company structure we have now is fairly scalable. As revenues begin to improve, which we believe they will in the second half of fiscal 2017, we anticipate being able to observe significantly higher revenues without needing to build out our cost base accordingly.

The internal process improvements we've made and the people we have kept in key roles will help to deliver much of the scalability. We recognize this is a difficult environment but we are optimistic about the future of the Company even in the short term given the recent commodity price increase we have seen.

We have a vision of what Profire can become and we'll continue to work to build the Company and strategically position it to capture opportunities within oil and gas and other industries in the coming quarters and years. It's still going to be tough for a little while but we are confident that the decisions we have made over the past year have positioned the Company to capture future opportunities and deliver long-term shareholder value.

With that, thanks. And I will send it back to you, Brent.

Thank you, Ryan. As Ryan highlighted we currently have significant cash reserves of $21.3 million which provides us with immense opportunities. As noted on previous calls, in addition to cash preservation and interesting in our current product offerings and support we are exploring other investments that could drive long-term shareholder value including potential acquisitions of adjacent technologies in companies, improving treasury management and other investments.

We recently announced the approval of our stock repurchase plan which allows the Company to repurchase up to $2 million worth of Company stock over the next 12 months. We believe this buyback underscores our confidence in the strength of our balance sheet, our ability to create value for our shareholders and the future prospects of the Company. At recent market price levels, we believe our stock represents an excellent opportunity to buy at a significant discount and is a highly attractive investment.

Additionally, as we have followed the correlation between our stock price and commodity prices over the past several months we recognized an increase spread between the two which we believe indicates a positive buying opportunity. We will continue to seek and evaluate additional opportunities to increase shareholder value and employ our capital to generate meaningful returns.

Additionally, we will continue to consider and make internal investments in our new products as we have communicated. These products will contribute significantly to the Company's future growth even in a down industry. We will carry on with the additional R&D for the CMS and the 3100 as well as other products to improve to improve and refine them to deliver the greatest value to our current customers and enable the Company to branch off into other industries in future periods.

We are excited about the initial sales and installations we have completed and the possibilities to leverage the 3100 platform and future modules to diversify the industries we serve. We believe this product will continue avenues for growth in future periods as we dial in is capabilities to function in other industrial applications. We are also seeing significant opportunities within the oil and gas marketplace, especially with applications we previously could not serve as a viable option to control more than atmospheric burners and possibly enter the market as another option to the more costly programmable logic controllers or PLCs.

As noted, a big reason for the change in Harold's role is to focus on and cultivate these new market possibilities for the Company. Harold has tremendous technical knowledge and is a wizard when it comes to understanding the complexities of the applications of our products. We are excited for him to focus not only on bringing our products to these new markets but also more aggressively pursue potential M&A activities that will drive long-term value for the Company.

Recognizing that this past fiscal year was a difficult environment and that we managed a breakeven result we think that it is probably a reasonable expectation for this fiscal year, though we will work tirelessly to do better than that. The industry is tough right now as indicated by our fourth quarter.

From a revenue perspective our Q4 was probably a fair representation of where we could be for the first couple of quarters of fiscal year 2017. One of the biggest challenges that we face is the lack of visibility into sales in the short term. Because of this cash preservation will be critical and we do not foresee many capital expenditures by the Company during the year.

So while we anticipate the long-term opportunity to be significant and are hopeful that the latter quarters of this fiscal year will prevent a better sales environment than the beginning quarters we expect the first two quarters of fiscal 2017 will be challenging for the Company. We are optimistic that by the end of this calendar year we will begin to see the benefits of the recent commodity price increases, assuming they remain relatively stable. Over the past year there have been many wells that have been drilled and not completed due to economic factors.

As the economics and the basin begin to make sense again for these E&Ps to complete wells Profire will have many opportunities to provide the market with our solutions. We are hearing from a few OEMs we work with that this spring-loading effect with the drilled and uncompleted wells could lead to a significant budget spend by the E&Ps in the latter half of the year. 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 growth and net margins, substantial 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) William Bremer, Maxim Group.

Hi, Brent, Harold, Cameron, Ryan and Tanner. I think I got everybody, right? All right, nice blocking and tackling, good cash management on the year.

Let's just start off right there. Can we get a little more granular in your revenues? Can you give us a sense on how much of the revenue came from your BMS systems, how is the chemical, the CMS coming along, maybe give us a sense of how many pilots you're working on there and just help us break down the product-oriented revenue a little bit here.

We'll have Ryan talked to that for a moment and then bring in Cameron on some of the sales, present sales on the CMS, etc. So maybe Ryan you could start with that.

Yes, certainly. So consistent with prior quarters, obviously the BMS side of the business continues to be the most significant contributor to our revenues. We're still working to grow the CMS product and even the 3100 as part of the BMS revenues, as well.

Specifically, the CMS continues to be less than 5% of our total revenues at this point in time, though for our fourth quarter we did have the best quarter for CMS that we've had thus far. It's still pretty small. We had 14 systems that we were able to sell up and get out to several different customers, which is better than what we've had in any prior quarter related to CMS.

Overall, BMS remains our bread-and-butter and is still what's driving most of our value there. I will turn it over to Cam and he can probably get a little bit more color as to what we're seeing from our customers overall in relation to these products.

Yes, thank you, Ryan. So, yes, I guess just really it echoes BMS and particularly the 2100 still is the flagship product. It is still what is known and specified from our customers and again highly dependent on well completions and retrofits, etc.

CMS still very small part of our portfolio, still lots of great interest from customers. But still the fact that hey, this isn't really a safety product and we don't have budgets, so maybe later is kind of the consensus. But still very easy meeting for Profire to get because of the recognized savings that we've been able to achieve on some prominent case studies throughout the United States and even Canada.

So we do it expect we'll see some more interest with the commodity price even tipping around that $50. Even though a lot of our areas don't enjoy $50 a barrel oil there still is a renewed interest and some renewed optimism from our customers.

Gentlemen, the fourth quarter was definitely on the lower end of what I was forecasting. Do you still feel as though your market share that you once had do you still feel as though you have that type of high percentage market share or have your competitors your Platinums, ACLs, Surefire, have they picked up? What are you seeing in the field right now?

Thanks, Bill. Actually we have heard very little from them. We are quite confident that if anything we've increased our market share in that regard.

This has been a pretty tough time for everybody. And in particular for smaller companies if they aren't funded as well, perhaps, as they could be, if they are carrying some debt it's quite a burden. And so we feel like if anything there is a strengthening in our position.

My last question deals with the overall regulatory environment. The state of Colorado, Utah, even North Dakota all have regulatory mandates.

Many of them have been passed. So can you give us a sense of what your sales individuals that are targeting those areas what are they hearing from the customers there?

Cam, do you want to talk to that?

Yes, you bet. For the most part Colorado and Utah, a lot of the sentiment has been catch me if you can and there really hasn't been any enforcement. We have not heard of any penalties being levied or even any threat of it.

That being said, for example Colorado, the fact that our product represents the four main producers there which generate a majority of the production, that's not the only reason we are doing the retrofits when they were. And so for the most part I would say that regulatory just like in Canada where it was a strong push has been relaxed, if anything. There's been no evidence of anybody placing a fine that we have seen so far. (multiple speakers)

Bill, if I can just finish that one, it's pretty hard for some of these companies who rely on revenue from the oil companies to get too heavy-handed in the policing, both in these states and in the provinces of Canada. So I think they're in a bit of a quandary as to what they should do. They had the policies in place but as Cam said haven't really been active in policing those things. Thank you, Bill.

Rob Brown, Lake Street capital markets.

Mr. Brown, how are you?

Great, thanks, good afternoon. I just wanted to get a little more commentary on the visibility.

Oil prices have improved. Have you seen some greater interest and sort of what's sort of the trend in visibility I guess?

Great question. Well, Cam is with us, he's really in closest touch with the field and some of the responses and he has certainly given me some good answers to those questions. So, again, Cam we'll defer to you for a moment.

You bet. We still obviously a lot of our contacts in the head office, engineering realms have been let go over the last year, sadly. We still hear that this could continue for some producers. However, we do feel that that has slowed to a degree.

The rise in commodity price has definitely increased our quoting activity, our estimating activity. It's definitely increased the excitement from our manufacturers who put together production equipment. The fact is, though, there's a lot of those bidding on the same jobs because the producers now have their kind of have their way where they can have the pick of what they want to choose and they can really shop price.

But overall, although we still have some people saying, hey, I'm the guy this month, I might not be next month, from a field perspective I think we're seeing a lot more willingness to talk saying hey, this could be coming sooner instead of we don't know when this could be coming. So that sentiment is still very -- I'd say it's very optimistic right now, very positive.

Okay good. That helps. Quite a bit.

And then on the 3100 product you talked about generally that opens up your markets. But could you give maybe a sense in terms of what size, does it double the market opportunity or what's the market opportunity impact of the 3100?

Again, mister marketing man, Mr. Tidball can you address that?

Definitely can. As far as putting a number to it, I'd be doing a disservice high or low, I don't know. But what I can tell you just even from last week being at the global petroleum show, the amount of customers or potential customers that I was able to reach out to now because we are either close to being in their space or in their space of these companies who have built big process heaters, we are there.

We are very close. That market obviously there's not thousands upon thousands of process heaters being put out every year. However, there are many that need retrofitting.

There are a lot of old technology out there. We've already been involved with some of that. And there's also -- it's just when they do tick around they are looking for new and better technology, which the 3100 from all accounts and from early feedback from these potential customers is very positive.

So I can't put a number to it. It's tough to say. I would say it's larger than ours from a total dollar value but that remains to be seen.

And your last comment, too, is accurate and that when we use the 3100 on projects typically it is not a $3,000, $4,000, $5,000 per unit hit. We can do jobs up into the hundreds of thousands with this, so we don't have to do is many jobs in order to bring in significant revenue. So that again is one of the significant advantages here.

Okay, that's great color. Thank you.

Joseph Reagor, ROTH Capital Partners.

Hi guys. Thanks for taking the questions.

So I guess first thing, it didn't seem like you guys were giving actual guidance for 2017 because the visibility beyond a quarter or two was just way too cloudy to make a decision. But looking at those first two quarters of your fiscal year, it sounds like you're expecting it to be around where Q4 was but not quite as bad because the oil price has ticked up. Is that fair?

Ryan?

Great question, Joe. And you're right we have elected not to provide quantitative guidance necessarily, but to provide some more qualitative indicators and some of those you just commented on and picked up on. But that's ultimately what we're seeing.

We're very happy to see that the oil price has ticked up from the low in February and is now flirting in the $50 range. As Cam mentioned that's very positive for our customers, so we're starting to see an uptick there.

But the volatility that we've been through so far this year has really made our customers very hesitant and the timing of their willingness to spend is very difficult for us to gauge. Therefore, from our perspective we do expect that we may have still a couple of rough quarters this year. We have demonstrated some significant cost reductions year over year and in our Q4 costs were down significantly.

Some of those reductions were implemented in the last month of Q4 so we expect that Q1 will be even a little better than that. And we've continued on in Q1 with a few more additional cost-cutting efforts. So your assumption is probably a reasonable one.

Okay. That's very helpful. Then you guys mentioned the possibilities of M&A.

Could you I guess maybe elaborate further on type of transaction, magnitude of it, whether you just use shares and cash, would you take on debt? A little bit more detail there so we at least can have a framework of what might be possible.

Let me deal with your last question first, will we take on debt? Highly unlikely. We have a history of being debt-free, we'd like to maintain that, Joe.

But we do have a significant amount of cash in the bank right now and available to us if we feel inclined to make a move in the M&A arena. We are watching carefully to look for companies that have significant value but that are underpriced because of the same issues that we're dealing with, the commodity issue, price issues.

We're not desperate to go out and make deals but we're watching carefully. We would like to stay in the same related base. We don't want to get too far from where we are in that regard.

But there are lots of opportunities in other industries using combustion controls and agriculture is but one of them, pulp and paper, those kinds, the whole boiler industry and so on. So we are watching carefully for opportunities to step into other industries perhaps through an acquisition of a company who is presently in that, knows the industry well and can help us make a more seamless transition.

We're very cautious as well about only making a deal when we feel that the cultural fit is right. This isn't just economics but we don't want to get ourselves in over our heads either culturally or financially by taking on some company that has too much debt, especially when we don't know how long this is going to continue this troublesome environment. So to answer your question, we are definitely looking but we are not out there desperately making deals just to try to get in before the market moves up.

Okay. Fair enough and then one final one if I could. On the customer front you guys talked about continuing to grow your customer base.

Can you give us a little bit more of an explanation of exactly how you guys define someone as a current customer? Is this someone who has purchased in the last year or someone you have a master sales agreement with or exactly what the context is there?

Ryan?

Yes, great question, Joe. So the way we've defined it is just someone who's purchased within the last 12 months. So in the press release associated with our filings and announcement we mentioned that we had 300-plus customers in fiscal 2016 that had purchased.

The number is close to 350 is really what we've got there and if you compare that to what we had a year ago it was around 220 or thereabouts. So we have demonstrated significant growth in the last 12 months in that customer base. The quantity and dollar amounts that each of the customers is purchasing has unfortunately been down quite significantly, but we are quite proud that we are servicing many more customers today than we were 12 months ago.

Okay, that's very helpful. And sounds good.

The advantage of that of course, Joe, is having all those new customers is that when things do turn around and they start to purchase significant numbers, the volume of sales could go up really significantly. So we're quite excited about that. Thank you, Joe, for calling.

Thank you, guys.

Mark Lanier, Pegasus Capital.

Congratulations on your accomplishments in a tough period of 2016. And actually the questions I had have been covered, so I don't need to ask another one, but I will put in my $0.02 and say how pleased I am that you have authorized the stock repurchase.

It seems a very intelligent use of some of your capital. I wish you all luck going forward.

Thanks, so much, Mark. Appreciate you being an investor.

William Bremer, Maxim Group.

Yes, I just want to get a sense on if you could provide sort of the mix of your sales that occurred directly from your personnel versus from your distribution channel? And whether or not your gross margins on the product have held up quite well considering the fallout, and I was wondering are you still going to be able to maintain that in the first half of 2017?

Ryan, do you want to answer that?

Yes, I'll speak specifically to the gross margin side a little bit but then I think Cam could provide some color on probably both of your questions there. It has definitely been challenging for us in this last quarter and so far this year from a margin perspective.

We've had customers reaching out to us asking for significant discounts to some degree and we've managed those situations pretty well in each individual circumstance. In some cases we have taken a little bit of a margin reduction but it was also in exchange for some additional purchasing from those customers. So we're able to so far maintain that margin.

We expect that we will probably continue to get some pressure there. But for our -- for the products that we sell, we have some that have quite high margins and we're able to do a little bit of negotiating on those and others where it's more of a resale situation we have been holding pretty steady on those as well. But Cam, you've been involved in some of these discussions with our customers. Maybe you can comment there.

Yes, you bet. Everything you said there is correct, Ryan. The pressure is still there. However, I think we've weathered a lot of it with securing more volume if we did a deal or looking for other opportunities to save them money on other products they might be buying where we might just get be able to take over that part or piece for them.

With respect to the question on kind of hours I guess our customer mix, Profire has traditionally enjoyed, I'll say it, having our cake and eating it too where we sell direct to customers and we do some service direct, as well as we would sell through a lot of resellers to areas where we don't have a service team or to manufacturers. Now, with the downturn obviously we've seen a lot of instrumentation electrical companies who were in the burner game, as it were, move out of it because they just have to focus on their core, plus they have drastically reduced staff. We've seen OEMs, some closed their doors, some merged and some focus on other types of production equipment that don't require the use of a burner management system.

So to comment on that right now we're selling direct to end-users more than we ever have as a percentage of sales orders, of course not dollar volume. However, that being said the positive news again is just our customer count has gone up. The number of 350 is a low number because some of our resellers who are still in the game, they obviously service a lot more customers than just one or two.

So as far as percentage we're going direct a lot more than we had to in the past because our salespeople are having to get out and get that maintenance budget. That's still there is some of that the CapEx where we get on the new production equipment.

Okay, great. One for you Ryan. Has the stock buyback started as of yet?

No, the actual purchasing has not started. We are still working with brokers and putting out agreements and contracts in place and dealing with our current blackout period that we've been under. We haven't actually put that in place just yet.

But it is for fiscal 2017, right, that is the timeline?

Correct. We want to get that in place as quickly as possible. We think right now presents a great buying opportunity and value for us as a Company and shareholders, so we are committed to getting that in place very quickly.

Okay great. Thank you.

This concludes the time allocated for the question-and-answer session. I would like to turn the conference back over to Mr. Brenton Hatch for any closing remarks.

Thanks very much. Thanks, everyone, for joining us today on our fiscal 2016 conference call. We'd like to thank our loyal customers, our employees and especially you are shareholders for your continued support and encouragement.

Please know that we are, of course, available anytime to our shareholders to discuss questions or concerns you might have if you'd like to contact us directly. Thank you and have a great day everyone.

Again, I would like to remind everyone that this call will be available for replay through June 21 starting later this evening via the link provided in today's press release and in the investor relations section of the Company's website. Thank you, ladies and gentlemen, for joining us on today's call. You may now disconnect.