Profire Energy Inc (PFIE) 2018 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 Second Quarter 2018 ended June 30, 2018. Joining us today is 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 future business development activities, expansion into international markets, the release of new products, the expansion to other markets due to the SIL certification, that new product certifications will add significant value to the company, additional capabilities of existing products, the potential of international markets and the company's ability to deliver products to the market faster.

All such forward-looking statements are subject to uncertainty and changes in circumstances. Forward-looking statements are not guarantees of future results or performance that 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 the 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 will be available for replay through August 16, 2018, starting later this evening. It will be accessible via the link provided in yesterday's press release as well as on the company's website at www.profireenergy.com.

Following remarks from Mr. Hatch and Mr. Oviatt, we will open the call to your questions. As part of the questions and answer session, Mr. Hatch and Mr. Oviatt will be joined by Profire Energy's Chief Business Development Officer, Cameron Tidball; and Vice President of Operations, Jay Fugal.

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. Good afternoon, everyone, and thank you for your interest in Profire and for joining us on this call. This past quarter, we continued our efforts to establish good customer relationships, improve our products and expand our reach into international markets.

Our overall performance for the quarter represented our second best quarter in terms of revenue in the past 3.5 years. Prior to the quarter ending, we've provided an update that we expected revenues between $11 million and $11.2 million. We are pleased to announce that we exceeded these expectations and actually recognized revenues of $11.3 million. Revenues are up nearly 20% from the $9.4 million we recorded in the second quarter of 2017.

As you are all aware, the past few years has been very volatile in the industry. We believe the activity in the oil and gas markets is a result of the stabilization in the industry and the return to seasonal cycles. Historically, the spring and summer months are slower. The difference between the first 2 quarters reflect this seasonality. However, because of the strategic decisions we've talked about before, we are able to show year-over-year growth and are on track to exceed our 2017 performance and achieve historic levels of cash flow and profitability.

Net income in the period was down just slightly from the previous quarter and is up over 30% when compared to the same quarter last year and equates to $0.04 per share. While our legacy product sales remain the majority of our business, we are focusing on international growth now more than ever with the implementation of our business development team. We have established a relationship with an international distributor, which resulted in repeated sales this quarter. We have also hosted international groups in our corporate offices to discuss how our product can be used internationally. The business development team remains dedicated to Profire's strategic growth. As always, we maintain our traditional corporate beliefs and strategies while taking deliberate and strategic actions for growth.

We continue to add new capabilities to our existing products and plan soon to release new technologies as adjacent product offerings. Our business development team meets regularly with customers in the field to discuss our products and what we can do to further automate their processes and anticipate their needs.

Another core growth focus for us is our commitment to research and development. We were excited to announce in a press release on August 2 that we received a functional safety or SIL certification on our PF3100 product. This accomplishment opens doors for Profire to enter markets that we previously could not serve. In the coming months, we plan to move the updated PF3100 product software into necessary field trials with targeted customers to validate the additional safety capabilities of the product before rolling it out to full-scale production.

The company's PF3100 sales force is being expanded to accelerate the speed-to-market of this updated product. In addition to present markets, they will be focusing on midstream, downstream, refining and petrochemical applications. The additional product certifications in expanded markets allow us to remain an industry leader and position us well for continued growth.

With that said, I will now turn the time over to Ryan Oviatt, our CFO, to discuss the financial results for the quarter. Ryan?

Thanks, Brent. Yesterday, after the market closed, we filed our 10-Q with the SEC and discussed the quarter's highlights in a press release. As always, both of those documents are available on the Investors section of our website. The transcript of this call will be posted in the coming days.

Let's begin by looking at the income statement. In the quarter, we recognized $11.3 million in revenue, which is a 20% increase from the same period a year ago. This increase is largely attributed to our ability to leverage our expanding customer base. During the downturn, we strategically worked to expand our customer base and we are now seeing the fruits of that labor as the overall market has started to stabilize.

Oil prices have increased this quarter, ranging from an average of $63 per barrel in the first quarter to $68 in the second quarter. We anticipate this stabilization will be reflected in our customers' CapEx spending in the coming quarters.

With the increase in revenues, our gross profit increased to $5.9 million or 52.1% of total revenues as compared to $5 million or 52.6% of total revenues in the year-ago quarter. Gross profit margins fluctuate slightly each quarter due to product mix changes, direct labor costs and adjustments in our inventory and warranty reserves.

Total operating expenses were approximately $3.8 million or a 21% increase from the same quarter last year. This increase is primarily due to hiring additional employees and investment in R&D. Operating expenses for general and administrative increased 23%. R&D increased 15% and depreciation decreased slightly as compared to the same year-ago quarter. The increase in expenses is primarily due to higher labor costs to meet the increasing customer demand and to retain employees. R&D expenses increased year-over-year to achieve the SIL certification requirement.

Total other income during the period was roughly $192,000, the majority of which was attributable to interest on investments and the sale of fixed assets. Our net income was $1.7 million or $0.04 per share compared to net income of $1.3 million or $0.03 per share in the same quarter last year. Net income is up 31% over the same quarter a year ago.

Now let's look at the balance sheet. Cash and liquid investments totaled nearly $21.6 million as compared to $24.3 million at the end of 2017. We were able to maintain more than $21 million in cash and liquid investments despite spending $4 million in purchasing company stock.

Inventory levels increased to $8.3 million from $6.4 million at the end of 2017. The increase is a result of the industry-wide trend for longer lead times on certain items. Our operations team has worked closely with vendors to ensure timely delivery and eliminate single-source items where possible.

Our accounts receivable collections remained strong and the balance of accounts over 90 days old was only 4% of total accounts receivable compared to 13% at the end of 2017. We continually seek opportunities that could help further our strategic growth and currently have the resources to make investments that we feel will be beneficial to Profire. Our management team works to allocate spending to meet market demand and to accelerate growth.

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

Thanks, Ryan. We have established certain strategies that continue to work for us. Rig counts are up year-over-year but down quarter-over-quarter. However, drilled but uncompleted wells or DUCs have increased by nearly 1,000 year-over-year and 250 from the previous quarter. The DUCs represent deferred revenue for us as these wells will be completed at some point in the future. Despite these quarterly swings, we believe the industry continues to improve and is positioned for further growth in coming periods.

Now that we have received the SIL certification, we are beginning to perform field trials with customers to ensure the product is meeting expectations. This accomplishment opens the door and creates the path to entering into downstream, refining, petrochemical and other more advanced higher-spec projects which requires SIL. These more advanced projects are typically planned out 6 to 18 months in advance, and our business development team is now working with customers to be part of these projects.

In addition to SIL, we recently purchased land near our Canadian office in Alberta, Canada, with the intent to build a facility that will greatly improve the working environment for our research and development team of engineers. We are working closely with architects and our engineers to make a facility that will enhance the product development process and expedite the cycle for bringing our products to market.

Our legacy products are performing well and are widely considered the industry standard. The chemical management systems continue to generate interest throughout the industry. We are committed to the implementation of the SIL certification and its additional product enhancements as we believe this will be a significant revenue driver going forward.

In addition, we are looking at merger and acquisition opportunities that will complement our existing product offerings. We have a renewed focus on automation, including the exploration of the Internet of Things capabilities and other technologies that could be used within the market. We remain committed to certain key strategies that have driven our growth over the past years. We have a long-standing principle of remaining debt-free. We continue to maintain a healthy cash reserve. This allows us to react quickly when we need to invest internally or externally to accelerate our growth.

At the end of last week, we announced that Harold Albert, one of Profire's founders has resigned from the Board of Directors. Harold retired from his position as CTO in 2017 and resigned in order to address an estate planning and family health concerns. I want to personally thank Harold for his contributions to Profire over the years. Our Board's Nominating Committee is now reviewing possible replacement candidates and we will make an announcement of any new member selections when the timing is appropriate.

Thank you for your interest and investment in Profire. Our entire Profire team is dedicated to our success. We are working to provide superior products that set industry standards for reliability and ease-of-use. We believe our strategies will allow us to grow within our current markets and provide the flexibility to explore opportunities in international markets and the other areas now available to this through the SIL certification. The execution of these strategies will enable continued growth in the coming periods.

I want to thank our staff and management teams that work tirelessly to improve this company. We trust they will continue to perform at a high level and meet or exceed our expectations.

Thank you. And we will now open up the call to questions. Operator, would you please provide the appropriate instructions so that we can get the Q&A started?

(Operator Instructions) Our first question today is coming from the line of Rob Brown with Lake Street Capital.

I wanted to first start with the chemical management business. I know you've had some shipments there. Could you give us a sense how many entered the field and maybe the cadence of how those could turn into additional reorders or what have you seen in terms of repeat orders in that business line at this point?

Great question. We -- I often defer to our man that is closest to sales, Cameron Tidball, and I won't change that approach today. Cam, could you talk a little bit about that if you'd like to? If not, I will. But go ahead.

Yes, always happy to talk about it. Right now, we've probably got approximately in that 80 to 120, say, 100 units in the field. Some have resulted in repeat orders. Obviously not to the capacity we'd like. A lot of our orders have come from midstream companies or companies that are working on smaller applications like H2S, Scavenger (inaudible), Ultra Fab Unit. So there isn't the volume that exist when compared to like burner management systems where you can -- there's quite a few more. With that being said, we've had some great success or good success here in Q3 already where we've seen some repeat orders from some customers, which is great to see. And we continue to get more trial units out and get more people trying it. We really feel that a critical part to our strategy is get people to try it so that they can get it into their budgets for the upcoming quarters.

And then, on the international market growth potential there, do you feel like you have all the channel partners in place? Or are there more channel partners you can put in? And what's, maybe broad brush, the market opportunity internationally?

Brent, would you like me to answer that one?

Yes, please do.

All right. Sure. Internationally, we kind of -- one of our goals this year was to increase that presence, of course. And we spoke about it. We left it alone during the downturn because we just wanted to focus on our backyard and ensure that we grew our current -- our customer base here in North America. But internationally, we've had some success in the last 2 quarters where a partner that we have gotten involved with has put in some decent orders that have gotten to the MENA region, specifically the Middle East, on some ground floor project. We've had some repeat orders there. And they look to be a strong channel partner for us in that region. They had -- they are connected. They know our business. They understand it. They understand that business. We have also had recently some people from other countries, including China and Argentina, visit our corporate facilities where we believe that there's some opportunity there in their market to do a little bit better. So I wouldn't say we have all the channel partners in place. Our goal this year was to get kind of that 3 to 5 strong or potentially strong channel partners in place. And so far, we're trending to be able to accomplish that goal.

The next question is from the line of Jim McIlree with Chardan Capital.

I would like to ask about the 3100. And it sounds like the rest of this year is kind of trial pilot. And then, since you have such a long sales cycle, meaningful contribution, if they come, would be kind of a second half of next year. Is that a reasonable way to look at how the 3100 rolls out?

Jim, I think that's certainly accurate, especially if we're looking at the downstream -- midstream, downstream refinery, SIL-related jobs that we are talking for the 3100. That certainly fits. What we need to remember is that the 3100 does have lots of other applications. And actually, we're seeing quite an increase right now, an interest in bringing that on in these other arenas where the SIL certification isn't necessarily necessary, but where it augments the interest in it. But Cam, again, because of your involvement with this, do you want to address that issue for just a sec?

Yes, you bet. So the 3100 SIL, we've seen the pipeline continue to strengthen. The number of projects we're doing per quarter is increasing gradually every quarter. We're seeing some of our customers that were long-standing 2100 customers make the jump to the 3100. One, because it's newer technology. Two, because it allows them to automate a few more things on their site that they'd like to. We've done some projects released recently for a large pipeline company in the United States who's standardizing on the Profire 3100 across the U.S., anywhere from North Dakota, Colorado and South Texas and West Texas. So we'll still continue to increase sales in -- very close to the -- and even to a degree, replacing the 2100, at of course, at a higher average sales price. Brent, accurate on the downstream market, that is going to take some time and that is going to be a little bit later towards next year where we start to see some there. We won't be -- I think you mentioned trials. When we talk trials with the 3100, we don't really trial the product anymore. But we are trialing the SIL-certified software. We're still -- we're putting it in places where we can watch it closely and make sure that it's functioning exactly how we'd like it to perform.

Okay. And then, secondly, Ryan, in your remarks, and maybe, Brent, you as well, you talked about seasonality and prices stabilizing. I forget the exact adjectives and nouns you're using, but it kind of sounded like you wanted us to be cautious in how we're thinking about growth going forward that -- and maybe I'm reading into it too much, but it kind of sounds like you want us to recognize that we've seen a big part of the recovery. And so now, you need the new products or you need a further increase in oil prices or activity in order to get a presumption of -- at a high growth rate. Am I reading too much into it? Or is that what you were trying to get at?

Well, I would say perhaps, Jim, you are reading a little bit into it that isn't there. We are always cautious. As you know, we tend to be a very -- take a conservative approach to giving any kind of guidance. We have noticed traditionally over the years, and this goes back 1.5 decades or so that typically, summer months tend to be a bit flattish in terms of getting things done. We don't feel that there's ever really a lot of dynamic growth, except occasionally. When we're coming out of the downturn, we did see some things happen. Now having said that, we have seen a fairly nice increase in interest in our products and in our pipeline for -- coming towards the end of the year, as we have projected all year long that we would be somewhat flattish at the beginning, but towards the end, we would see some renewed vigor in the markets. And we are seeing that. The request for quotes, the pipeline of projects, as Cam alluded to, even with the 3100, seems to be strengthening. And so I don't think there's a reason for negativity at this point. We do think we will have a very good year still, that this year-over-year is going to be very positive for us. Cam, perhaps you might add something to that? Or Ryan? Ryan first, why don't you.

Yes, certainly. I think you hit it very well. And the other point I would add there is that we have seen some good stabilization in prices. We've seen an uptick in the last quarter in the oil price. But also remember that it typically takes time for that uptick in prices to flow through our customers into their CapEx budgets and then even into our revenue stream. So there is some of -- some seasonality associated with even those fluctuations in prices. And therefore, what we are saying that we do expect that in the next couple of quarters that flow-through should happen and that we should see some additional improvement there. But yes, we're always hopeful for higher prices and that, that will have a very positive impact on us going forward in the industry as well.

Cam, any additional comments on that?

Jim doesn't want to hear from me because he's golfed with me before. Nothing to add.

Oh, I see. Okay. Thank you.

Unless you want to.

The next question comes from the line of John White with Roth Capital.

On the international sales, have all the sales been to the Middle East? And if so, do you want to say what country?

Cameron?

To the partner that we've been working with, yes, all of their sales, they've all gone into Saudi Arabia and through some of their partners there and direct with Saudi Aramco, which is great. Very difficult to get into that world of sales. We've also sold some products into other countries. But through that distributor specifically, they've all gone into Saudi Aramco.

And I think that's a good point that you make though, Cam, that we do continue to make sales into other countries, but it's often through the customers that we have -- that we work with here in North America that they take them on their projects abroad. So we do have product continually going to other countries. It's just that we're trying to strengthen the direct association with the distribution units there.

Yes, there's probably not a week or a month that goes by that we don't send international product because our product is everywhere, but yes, as Brent said, we're just trying to officialize it, if that's a word, more fully.

Okay. And on the initial sales of the 3100, can you comment, are a lot of those customers for the 3100 previously been customers for the 2100?

Cameron?

A combination of both. Some of them, for example, like an EQT, a long-standing customer of Profire for years, now that we have the 3100 and its [4-strap] capability, they're able to move that over to other types of heaters that they have. And so they've just kind of expanded what they do with Profire. EQT is another good example. Chevron, they use multi-piloted combustors, which the 2100 could do the single-piloted combustor, that the 3100 takes over here. So we have DUCs, which is great, expanding our stickiness with customers and our share with them. But we're also bringing on new customers that we have never had before. It's a nice balance actually right now.

That is good. With the product applications, as you and I have discussed previously, you don't need an entirely new sales channel for the 3100. You can utilize your existing 2100 to a large extent.

Correct, yes.

That's a good point though. Just before you leave, John, we are working, in addition to using the existing sales, sales force that we have, we are working on establishing new sales vertical just for the 3100, particularly to focus further downstream and on these SIL-related jobs. But we think that the combination of the 2 of them will make us very effective in taking this to market.

Our next question comes from the line of Patrick Murphy with Maxim Group.

So on the M&A front. Are you guys looking primarily at opportunities within the U.S., or are you looking internationally as well as sort of a way to increase that expansion you're talking about?

To answer the question directly, we're looking now presently at the North American market. And we're actually quite active in this. This is not just a casual if it happens, it will happen. We're quite serious about doing them. But on the other side of it, being as conservative as we are, we aren't taking just any opportunity that is there. We're looking for some adjacency in terms of dealing with where we are strongest right now, and that is in the upstream. But we definitely, on a very regular basis, are assessing, appraising other companies, and we feel like we're making some strong moves in that direction. But at the present time, we are North American-based.

But that's not to say that those opportunities wouldn't potentially have a presence or some international exposure as well.

Right.

Okay. That's helpful. With the hiring of the sales force for the 3100, how is that looking? Has that begun already? Is that expected to continue through the back half of the year?

Yes and yes. It has begun and we are just days away, I guess, from -- we've made some offers to a person and we have yet another person in mind in these coming weeks and month or so that we could add to the team. So we would hope to have a strong team of at least 3 people ready in to -- and active in this next month or 2. Does that fit, Cam, with where you're at right now?

Yes, definitely. We started the recruiting process as early as about 6 or 7 months ago. We don't feel that we can bring this person from within. We wanted to have someone that could hit the ground running. And of course, we wanted to get some of these approvals in place, some product development in place, some more installation under our belt. So yes, in the next -- this quarter and next quarter, that team, it will grow.

Okay. Great. And just one final one. With the EIA's slight reduction in U.S. oil production for 2018 and 2019, do you believe this will have any impact at all in your business? And how do you view the market in general?

Boy, Cam, you're a busy man today. Again, you're a little closer to it than the rest of us, but your perceptions on that one.

Well, the EIA is -- they're, in my opinion, they're a little more stable with their predictions than everyone else. They don't change with every bit of wind but they do still follow the winds a little bit. Yes, there's definitely the opportunity or the chance it will affect us. The great thing for Profire is you still look at quarter-over-quarter, we still increase our customer base. In fact, our last 2 quarters have been very strong in additional revenue from brand-new customers. So there's -- as much as Profire is the dominant player, there's still customers to go and get. And so yes, will there be some impacts to us from the Permian pipeline? Yes, for sure, there will be. Will there be some impacts for the changing of mega pad drills? There will be. However, our belief and our strategy is to continue to just add more revenue with customers, so that, yes, we might have less BMS going per pad, however, we're getting more pad because we have more customers. So that will continue. So there's definitely a balancing act there. And I think that there will be impacts. But I think there's still so much market share to go grab that we should be able to negate those.

(Operator Instructions) The next question is from the line of Arieh Coll with Coll Capital.

So 2 geographic questions. First one on Canada. As you know, the Canadian business is highly seasonal. And after a slowdown in the March quarter, historically, sales do a material step up in the June quarter, which did not happen this year. I'm just kind of curious of any sort of explanation for why the step up in quarterly sales didn't materialize here in June? And would you expect the step up to, I guess, happen here in the September quarter?

Yes. We -- Canada has been a bit of an interesting place. They've been dealing with some transportation issues that are fairly significant. And this has impacted the sales in -- certainly in the oil and gas area. But Cam, being a Canadian resident, why don't you address this from the -- from your side of the fence?

Well, I don't believe Prime Minister Trudeau is on the call, so I can be a little more free with what I say. But anyways, you're exactly right, Arieh, we normally would see that jump up. We haven't, the explanation Brent gave is very accurate. We also have -- there's been a shrinkage in terms of investment in Canada. There's been a shrinkage in the number of instrumentation electrical companies that are getting burner work as per se, project work has lost a little bit. The good news is that all indications show, especially in the heavy oil sector where Profire really got its start, that northern block, we are expecting things to ramp up in the last 2 quarters. We won't go back to historical levels. But we should see a very nice Q3 and Q4 as compared to Q1 and Q2.

Got it. Driven by the heavy oil customer base?

Yes, we believe the heavy oil and the Montney Shale will get a little bit busier here. A lot of them have just -- from spring break up was odd this year because it really wasn't weather. Spring break up was actually quite short this year because the weather fluctuation wasn't as great as it normally is here in the frozen tundra. But the -- basically, we heard from customers, E&P is telling their service groups to take vacation. And we've never heard that before. But they are basically saying we're going to be slow. Take vacation. Take vacation. But they're definitely seeing the trucks are rolling. You're starting to see rigs moving. You're starting to see the normal activity you would like to see. And so we believe that this Q3 and Q4 will be better than Q1 and Q2.

Okay. Great. And then, shifting over to the U.S. business. As you mentioned, we don't have exact correlation, but historically, as oil prices rise, that obviously provides more profits and money in the pockets of your customer base, which leads to, hopefully, dynamic sales growth of Profire. Nevertheless, your sales geographically in the U.S. did a step down here in June versus March. And I was just kind of curious, to what degree you're encouraged that just the background tailwinds of these higher number of DUCs and increasing CapEx because of higher oil prices should be able to drive renewal in your sequential sales here in the U.S?

We're quite encouraged. As Ryan said earlier, Arieh, there isn't an immediate response. When oil prices go up, we don't immediately see our sales go up. There's usually a 6 to 9 months lag. But one of the things that we, I believe, we addressed on the last call, was the fact that the E&Ps this year projected, in a large meeting we attended in November, that this year would be a year that they work on improving their balance sheet, on paying off debt, on focusing on, internally, on some different kinds of issues, and that the CapEx spend wouldn't be as significant this year because of that, as it traditionally has been or it might be in the future. And we have seen that very thing play out. We saw one of our large customers in Colorado for example that spent their entire year's budget the first quarter, which was really nice for us in the first quarter. But it leaves things a little slow for the balance of the year. We expect to see, and fingers crossed, expect to see that CapEx spending will start to become more of a focus next year. And of course, we are the beneficiaries of the CapEx spend. So we think that this has been a year that's been good for us, will be very good for us. But won't be our most stellar year ever. But we think that for the future, things will indeed keep moving our direction. Ryan, do you have any comments from your financial table?

I would fully agree with what you said there. I think, having the E&P companies doing some of those other things and focusing on debt and focusing on their balance sheets, although it may not help us today or help us in the short-term, it will help them in the long-term and prepare them to be stronger and able to invest more in the future. So it's great news for us in the medium and longer-term that those companies are more stable and are able to do more down the road. And as Brent said, we certainly have seen a lot of that coming out of their Q1 and Q2 calls and releases that, that's what they've been doing. Many are focusing on debt reduction, share buybacks and additional dividends to customers. But again, we believe that there still will be opportunity for them to expand CapEx somewhat this year but even more in the coming years.

Okay. And just a follow-up on the international side. Congratulations on the Saudi deal. The irony of it is not a lot of work was required on your part. Basically, the customer found you, which is a testament to your reputation, the quality of your products. My question is how far along you are in kind of formalizing the process of creating some -- a more substantial distribution effort or representatives overseas so that more of these Saudi type deals might become more common in the future? And then, part 2 on the Saudi deal, were you expecting to remain buyers of reasonable amount going forward here? Or they kind of bought enough volumes that maybe they'll be spending the next year kind of installing meters and have no need to come back for reorders?

Cameron?

I'll take question 2 first, if that's okay, because that's the one I really remember. But the Saudi deal, we believe that it is ongoing project that is based on drilling. Our hope and what we're hearing from our partner is that they plan to expand into Kuwait as well. And so based on drilling programs that exists there, the numbers could be very, very healthy for Profire. In terms of how they found us, it was kind of interesting because we were working with them on another project. We were in their warehouse. I was there actually and we saw that opportunity that they were working and asked them questions. And they immediately took to what we're talking to them about, put some on and away they went. We've done some customization work on some of our other manufactured items such as our inline pilot, which they used and they've had great success there. So I think I answered question 2, Arieh. Do you have a follow-up? Or did I miss some?

Sure. I'll repeat it quickly.

Thank you.

What efforts are you making as to formalize relationships overseas that you have numerous distributor in various countries that, hopefully, these Saudi sales can be achieved in other countries as well?

Right. So the big thing that we're trying to do is always -- is to quantify the market. We know that in the Middle East, for example, there's not a lot of heated equipment in terms of like treaters, combustors like Profire traditional business. We know there's a lot of ground sliders. And so we thought, well, we've got to find a partner that can do that. As I mentioned earlier, we've had some delegation, some companies, even some government officials from China that were -- they were here in -- they've been both to our Utah facility and our Alberta facility. We've met with them, taking them to plants, et cetera, and I actually will be speaking at an upstream forum in November where this company that we plan to work with their plans to be the VOC expert, the fugitive emissions expert of China. They already are in over half of the refinery, which are in China, doing leak protection work and other services. So we believe they're a nice partner for us. The upstream business in China is new. It's going to be new for them. So we believe it will be a long process, a longer process. But we hope to do that one. Again, quantifying market. So we're still trying to decide what are the best markets to focus time, effort and resources on. We do have a sales leader who is heading that up with me. While Canada has been a little bit slow, we have our sales leader here who is driving that initiative. And as soon as it makes sense, we will expand that team.

At this time, this concludes our question-and-answer session. I'd now like to turn the call back over Mr. Hatch. Mr. Hatch, please proceed.

Thanks so much, Rob. Thanks, everyone, for joining us today on our call to discuss the results of the second quarter of 2018. We'd like to thank you, all, for your continued support of Profire. We're available of course, as always, for any of you to discuss any questions you may have. Please reach out to us. Thank you, all, and have a great day.

Thank you. Again, I would like to remind everyone that this call will be available for replay through August 16, 2018, starting later this evening via the link provided in today's press release and in the Investors section of the company's website. Thank you, ladies and gentlemen, for joining us today. You may now disconnect.