Profire Energy, Inc.
Q2 2017 Earnings Call Transcript

Published: 12 Aug 2017

[Operator:]

Good afternoon, everyone. And thank you for participating in today’s conference call to discuss Profire Energy’s Second Fiscal Quarter ended June 30, 2017. 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 ability to allocate resources to take advantage of opportunities, the company’s ability -- the company’s R&D department being able to develop products in addition to its PF3100 products in the coming year, that future products will add significant value to the company, that the company will be able to timely deliver products with increased sales, the company’s sales verticals to support PF3100 products will be able to meet growth projections, the company’s investments will lead to minimal capital expenditures, the company’s process verification will allow sales to larger customers, the company’s cost structure is scalable to growth, the company’s ability to capitalize on CMS product sales opportunities, the company’s ability to execute on its capital allocation plan, the company’s intent to execute its share repurchase program, the company’s ability to return to historic revenue and the company’s ability to employ capital to generate meaningful returns in future periods. 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 material 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 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 August 17, 2017, 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 the remarks by Mr. Hatch and Mr. Oviatt, we will open the call to your questions. As part of the question-and-answer session, Mr. 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.

[Brenton Hatch:]

Thank you very much. Good afternoon, everyone. Thank you for joining us today as we provide an update on Profire’s second fiscal quarter. Throughout this fiscal year, we’ve seen increased stability in the oil and gas industry when compared with the two previous years. However, the rebound in oil prices in the first half of 2017 certainly has not found out as most had hoped and expected it would when the year began. Nevertheless, we are happy to report that the strategic actions that we’ve taken over the past 12 months to 18 months are paying off and have demonstrated -- and are demonstrated in the results of this quarter. We’ve seen significant year-over-year and quarter-over-quarter revenue growth, which combined with the effect of cost management has enabled our net income to more than double over the previous quarter and more than triple over the same quarter of last year. Unfortunately, the oil and gas industry has not done us any favors during the second quarter. The average oil price in Q2 was $48 a barrel compared to $51.6 per barrel in Q1. Even though the North American rig count is up by more than 100% from a year ago, the Q2 average rig count is down 4% from the average in Q1 due to the annual spring breakup cycle in Canada. The number of drilled but uncompleted wells has continued to rise and is up 15% from a year ago quarter and 9% from Q1 of this year. Many believe this is due to lack of capacity and lack of completion equipment for the oilfield service companies and OEMs. Our products are required once a well is completed and production begins. These trends then can make the industry environment challenging for Profire and its customers. For example, if there is drilling, but wells are not being completed it represents a deferral of sales activity into future periods. Despite these downward trends of the industry in Q2, we’re very excited about the company’s results for this quarter. Our revenues of roughly $9.5 million are up 21% over the prior quarter and continued the run of four quarters in a row with double-digit quarter-over-quarter revenue growth. There have been only five quarters in the company’s 15-plus-year history with revenues in excess of $9.5 million. Another bright spot for the quarter is that revenue from our PF3100 product line reached 8.4% of total revenue. We remain firm in our belief that the revenue potential for these PF3100 product line is significant and will provide tremendous upside potential in coming years. In addition to generating significant revenue and net earnings growth, our company remains debt free and holds strong cash reserves. At quarter end, we held just over $20 million in cash and liquid investments, and once again, generated positive operating cash flows in the period. Investments we made during the boom years in capital assets now allow us to grow with minimal capital expenditures. Our existing capital assets, our inventory and experienced personnel enable us to react quickly to increases in customer demand. One of the greatest strengths of Profire is the high quality of our team members across all departments. We achieved our revenue growth without hiring many new employees. We worked hard over the past quarter and our management team and staff embraced lean management practices that have helped to keep our costs low while expanding our capabilities. This has allowed our revenues to grow at a faster pace than our operating costs. The Profire R&D team is currently focused on implementing procedures to certify our product development process. We believe this certification will ensure in more reliable and repeatable process, which will open doors for us to provide solutions to larger customers that require these additional certifications. Technology product development remains a key focus for the company, particularly with the PF3100 product in order to expand its features and possibilities. Profire is committed to maintaining its position as an industry technology leader. We’ve proven that we can turn a profit into debt quickly even as the industry continues to struggle. We believe that we can quickly take advantage of opportunities as they arrive that will help Profire to succeed in the future. I’ll now turn the call over to Ryan Oviatt, our CFO, to discuss the financial results for the quarter. Ryan?

[Ryan Oviatt:]

Thanks, Brent. Yesterday after the market close 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. In this quarter we were able to exceed expectations as we continue to execute the fundamentals of our strategic plan that was set in place over the last 12 months to 18 months. This quarter the results speak for themselves. Let’s begin by looking at the income statement. In our second quarter of 2017, our total revenues increased to nearly $9.5 million, a 138% increase over the same year ago quarter. This increase is partially attributable to increased CapEx spending by oil and gas companies as oil prices stabilized between $40 per barrel and $50 per barrel. With the increase in revenues our gross profit increased to just under $5 million or 53% of total revenues, as compared to $1.9 million or 48% of total revenues in the same quarter of last year. Gross profit margins remained strong but typically vary a little each quarter due to the changes in the product mix. Total operating expenses increased to $3.1 million from nearly $2.8 million in the same year ago quarter. This 13% increase in operating expenses is a modest increase when compared with the 138% increase in revenue over the same period. Profire has been able to manage costs through the recovery, ensuring that costs are not increasing at the same rate as revenue. Operating expenses for general and administrative increased 15%, R&D increased 10% and depreciation decreased 18% as compared to the same quarter a year ago. The minor increase in expenses is primarily due to hiring personnel to meet the increase in customer demand. We remain committed to supporting our customers and will make strategic hires and investments where needed to maintain high levels of customer service, develop quality products and to ensure timely deliveries to customers. Total other income during the period was roughly $120,000, the majority of which was attributable to interest income and gains on the sale of assets. Our net income was $1.3 million or $0.03 per diluted share, compared to a loss of $605,000 or a loss of $0.01 per diluted share in the same year ago quarter. This significant increase in net income was attributable to our ability to augment sales without proportionately increasing expenses. We’ve established a cost structure that is scalable with growth and we believe we can continue this trend moving forward should revenues increase. Cash and liquid investments totaled $20 million as compared to $22 million a year ago. In the past year, we’ve been actively repurchasing our own stock as part of the previously communicated capital allocation strategy. We continue to purchase shares pursuant to this plan, while maintaining our cash reserves at appropriate levels. In the past 12 months we have purchased $6.4 million worth of Profire stock, the majority of which was enabled through operating cash flows. Generating positive cash flows will continue to be a key area of focus for the company. We continue to focus on improving working capital management. Inventory levels have increased slightly. Not all of our vendors have rebounded as quickly as we have and many are requiring longer lead times. We are working with vendors to obtain shorter lead times and establish delivery schedules, which will enable us to make timely deliveries to our customers. Our accounts receivable collections remained strong and the balance of accounts over 90 days old was only 6.5% of total accounts receivable at the end of the period. We will allocate capital according to the plan we have previously communicated. We will focus on the preservation of cash, new product development, potential acquisition of adjacent technologies, executing our stock repurchase program and seeking out other value creation opportunities. These actions will allow us to serve our customers and bring new products to market quickly and efficiently, while increasing value for shareholders. The cost and company structures we now have remain scalable. With a substantial increase in revenues of 138% over the prior year and 21% over the prior quarter, our operating cost structure has remained relatively flat only increasing 13% year-over-year. This structure allowed us to achieve a 317% increase in net income when compared to the same quarter a year ago. We are committed to maintaining an appropriate cost structure as we continue to grow and we will remain vigilant in the pursuit of other opportunities that could add value to our company and its shareholders. With that, thanks and I’ll turn it back to you, Brent.

[Brenton Hatch:]

Thank you, Ryan. As Ryan has highlighted, our execution of strategic planning has contributed to our great success this quarter. We plan to move forward and build upon this success and believe we’re well-positioned to handle future growth. Throughout the quarter, we hired a limited number of employees to better meet customer demand. These hires were mainly in our operations and R&D departments. Our R&D investment is largely focused on supporting our PF3100 product. We previously announced new sales vertical to support this product line. We’ve hired a project manager to deliver projects to market in a timely fashion. We still believe that the PF3100 controller sales will increase in the coming quarters. In addition to this focus, the R&D department is developing other new products that we anticipate will be released in this next year. There is still a lot of uncertainty in the industry. However, and we are able to work through this volatility and remain focused on finding and supporting those customers who have CapEx budgets to spend. We have looked for opportunities to strengthen our relationships with vendors. We have met with upper management and some of our key suppliers, which has enabled us to reduce lead times and improve those relationships. Throughout the quarter, we maintained a healthy sales pipeline by listening to customers and being in touch with the industry, we focused our sales efforts in certain regions. Specifically, we saw increased activity in the Permian Basin and the STACK and SCOOP regions. We also saw renewed interest in the CMS product line this quarter, which could have significant potential in subsequent quarters. We thank you for investing and showing interest in Profire. Our management team and our staff remain dedicated to delivering the best products possible. We are actively attending investor conferences to attract new investors and strengthen relationship with existing investors. We believe we’re in a great position to serve our customers and deliver products that will either meet or even exceed their expectations. Our business has grown and due to improving conditions, we believe it’s possible for us to return to our historic revenue levels. Now, with that, I’ll open up the call to questions. Operator, would you please provide the appropriate instructions so we can get the Q&A started?

[Operator:]

[Operator Instructions] Our first question comes from the line of Rob Brown with Lake Street Capital Markets. Please state your question.

[Rob Brown:]

Good morning.

[Brenton Hatch:]

Hi, Rob. Please go ahead.

[Rob Brown:]

My first question is on the PF3100, you noted an uptick in that business. What markets are you seeing traction and what sort of areas are you seeing there? And then maybe could you give us some color on the sales cycle on that product and how it’s looking sort of profile?

[Brenton Hatch:]

I’ll defer to Mr. Salesperson himself for the company. Cam would you like to deal with that one?

[Cameron Tidball:]

Yeah. For sure, we’ve seen so far the PF3100 has been very attractive to your midstream operators who are dealing with small plant operations, thermal oxidizers, some cabin style or process region heaters. So we’ve seen a great value of our product in that area, as well as the OEMs who are dealing with forced-air applications that are being sent out on just big process heaters. That’s where we’ve seen the best uptick, not so much in the downstream space as of yet, that’s still planning for the future. And we’ve even seen customers sort of somewhat of our surprise in the upstream world has some interest as well, even though it’s at a higher price point, but they liked at the features and cutting edge technology that it is for the future. So that’s where we’ve seen things so far. As far as the sales cycle, the midstream and the upstream can be as quick as a month to three months, even sometimes we’ve had projects that we started six months ago. As far as when we get into the downstream space, those will be the longer term and longer lead time for the sales cycle. They’ll take a lot longer.

[Brenton Hatch:]

Thanks, Cam. Did that help, Rob?

[Rob Brown:]

Yeah. That was great. Thank you.

[Brenton Hatch:]

Good.

[Rob Brown:]

That’s helpful. And then, on second question, I really wanted to get a sense of, you talked a little bit about the oil and gas market being a little mixed. But what sort of the demand trends you’re seeing into the third quarter here and how does it look for the rest of the year?

[Brenton Hatch:]

We originally anticipated in our first two quarters, as you -- first quarter, as you recall, in this call we -- we’re quite optimistic about where oil prices would be towards the end of the year. And the reason we were is because the oil companies themselves had projected that the oil prices for the first quarter would kind of start out in the low 50s and end up in the high 50s towards the end of the year. Of course we haven’t seen that. We projected back at that time that we might see a little more strength in the last two quarters because of what they were projecting. Now with oil prices down in the 40s, where they seem to be stabilizing, we are little unsure about what is going to happen. We aren’t quite as confident that we will see the kinds of increases we’d hoped for for the last two quarters, but we remain confident that somewhere in the levels of the first quarter and second quarter we hope to be able to maintain our numbers.

[Rob Brown:]

Okay. Great. Thanks. Thanks, Brent. I will turn it over.

[Brenton Hatch:]

You bet.

[Operator:]

Thank you. Our next question comes from the line of Jim McIlree with Chardan Capital. Please state your questions.

[Brenton Hatch:]

Mr. Mcllree, how are you, sir?

[Jim McIlree:]

I am great. Thank you, Brent. How are you guys?

[Brenton Hatch:]

Good. We are great.

[Jim McIlree:]

So just to kind of expand on the last question-and-answer, Brent. The very gloomy commentary that you opened the conference with, was more to say, don’t expect big increases in the second half as you would originally project it, am I reading that right?

[Brenton Hatch:]

I think that’s fairly accurate, Jim. We don’t know for certain, obviously, no one knows where things are going to go. So much of our revenues depend on the CapEx spend and that really, as I said, there seem to be some optimism at the beginning of the year that the CapEx spend would be fairly aggressive because of oil price projections at that time in the high 50s. Well, we haven’t seen that and so we are little unsure. We haven’t had all the signals yet from the E&Ps as to where they are going. But we want to not be overly optimistic, but we feel very comfortable with what we have done. We have an excellent sales team and excellent R&D team and we feel quite confident that we can maintain some of the strength that we’ve managed to achieve in the first couple quarters.

[Jim McIlree:]

Okay. That’s helpful. And then at the end of your remarks, Brent, you made a very short encrypted comment about CMS. Can you actually elaborate on that?

[Brenton Hatch:]

I certainly can’t. Cam, would you -- because you’ve been so directly involved in that particular part, would you address that issue right now?

[Cameron Tidball:]

Yeah. Jim, great description of Brent’s comments there, all again. So CMS is -- during -- it hasn’t been a significant contributor as we’ve discussed on these calls each quarter. This last quarter, we’ve all gained some excitement and we’ve had some renewed interest from several majors out there in the product. We’ve even got some more tests units out, which have -- will be turning into POs quickly and we’ve seen some very good results that we think will spring bought us into being able to push this product more than we’ve been able to in the past. So we’ve got some positive news. We hope we have some really positive news to share in the future, but the renewed interest is very exciting for the sales team and Profire as a whole.

[Brenton Hatch:]

Maybe, Cam, you could add even a little bit more color. There was one customer who took one of our units and then, would you like to carry from there, just give an example of what’s happened?

[Cameron Tidball:]

Yeah. We have -- in one of the areas in United States, where H2S is quite prevalent and expensive chemical. One of the operators there tried out our product within the first week was like, okay, this is -- there’s something to this and we’ve already calculated paybacks to them in less than 10 days of operation from the savings of chemical they had. And they’ve -- we believe they will commit to a large volume of their wells. Now not all of them have this specialized expensive product used on H2S, but we do know that this exist in a lot of places especially throughout the Eagle Ford and in the Bakken. So we hope and we know that we are going to able to get some strong testimonials from this company that will be able to use as proof in the pudding to a lot of other customers and potential customers.

[Brenton Hatch:]

Thanks, Cam. Hopefully, Jim, next quarter earnings call, I can elaborate just a little more than I did this time, give you some more details.

[Jim McIlree:]

That would be great. Hey, Cam, can you remind us, like the price point for the CMS system and is this something that has their short sales cycle potentially?

[Cameron Tidball:]

Yeah. Well, historically, it’s had a long sales cycle with this customer that has jumped on it was -- we’ve been working with them and trying to get them to take the time to put a product -- the product in for really over a year. Now I don’t think that that is going to take that long going forward with this customer and this should help us to shorten that up. It should be a very quick sales cycle similar to that of our BMS. The problem with anytime you’re dealing with chemical and we’ve said it and it’s factual that for most E&Ps it’s the second-highest cost next to human capital is the chemical budget. A lot of it is put in place and it’s kept in a little box and people don’t like to talk about it because it can be a big eyesore for companies, but as we see companies and somebody who is willing to champion it, they can make a big difference, they can be a hero and that’s what we’re trying to make it heroes without making operators and chemical companies to angry at Profire. So, I think, that that sales cycle is very similar to BMS. We think it can be the same thing. As far as the average sales price, it can depend, it varies anywhere from probably that on a very, very low end, $2,500 up to for a full get package in that $7,500 to $10,000. So the payback period on this one and you could do some reverse math. This is a very basic system. I think it was between that $3,000 and $5,000 mark, and they didn’t take long to pay it back, that’s for sure.

[Jim McIlree:]

Thanks, Cam. Great. Thanks a lot.

[Brenton Hatch:]

Thanks, Jim.

[Cameron Tidball:]

Thanks, Jim.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from line of [ph] Eric Kohl with Kohl Capital (27

[Unidentified Analyst:]

Yes. Thank you for allowing me ask question. Good afternoon, gentlemen.

[Brenton Hatch:]

Hi, Eric. Good afternoon. Good to hear from you again.

[Ryan Oviatt:]

Hi, Eric.

[Unidentified Analyst:]

I apologize I have joined the call late because I got distracted. So if I’m repeating a question, please interrupt and let me know. So the question is really about how well-positioned you are and we’ll call this a recovery or up cycle for oil services space relative to the past. So the question is this, how many, I guess, active customers you have signed up with Profire today relative to the number you may -- might have had two years ago, if you keep track of these numbers?

[Brenton Hatch:]

We do indeed and that’s a really interesting thing. During this downturn, many people kind of pulled back -- pullback their sales force, weren’t too aggressive, just kind of trying to hold on through the whole thing. We on the other hand under Cam’s leadership and he’s on this call, you can talk to him directly if you’d like. But under his leadership, he got even more aggressive and we’ve managed to more than triple the number of customers during that two-year downturn. We have even increased that in the first half of this year. We have increased that in terms of customers as our sales people have gotten even more aggressive. And more than that, as our product has found favor with most or many of the OEMs and most of the E&Ps out there and because of that acceptance, we find that many of our sales up to 40% or so are going directly to OEMs who ship on the vessels themselves our product right with it out to the oilfield. So, it’s -- I think, it’s both the fact that we as a company and our products have found a great favor, but also the aggressive work of our sales force to accomplish that.

[Unidentified Analyst:]

Got it. And you would say, in -- at the 2014, ‘15 time frame, your market share on your core product was kind of at what level, were you at 50%, 70%, what market share would you see you had in two years, three years ago?

[Brenton Hatch:]

Well, we have maintained. We typically stated that’s about 80%, but personally I think it’s probably a little higher than that right now. But, at that point, I would say 80% was fairly accurate.

[Unidentified Analyst:]

Was that today, so what should we think market share was two years ago?

[Brenton Hatch:]

Well, I think, that was more of what it was two years ago and I think we’ve actually increased that today. I think we’re actually a little higher than that now.

[Unidentified Analyst:]

Got it. Understood. And I guess, what I’m kind of alluding to these first two questions is, the company clearly has been -- being smart during those downturn in terms of trying to make progress in the company and it would just seem today versus two year, three years ago you have far more customers willing to buy your products, your market share was higher, your competitors are much weaker and on top of that, you’ve kind of upgraded your products that you had existed for more -- for better solutions and you’ve expanded your product line into new areas. So really the opportunity for Profire today to generate revenue is that much better than it was two years ago, so even though the industries outlook is always unknown, right? The -- in -- it might be flat, it might be up, it might be down, the bottom line is your opportunity set is much better than it was two years, three years ago, which partially might explain why your revenues have been robust. I know I’m kind of preaching, but just wondering to what degree you think my comments are accurate or not?

[Brenton Hatch:]

I agree with you, actually and I think the added -- the addition of the PF3100 product and new ones as we continue to progress in that direction with new products, we’ll continue to do that. But the only limiting factor -- I agree fully with what you were saying, but the limiting factor is, even though we have more customers and so on, the spend -- the CapEx spend by each of those customers is not as high as it used to be. But, certainly, in terms of the future, assuming CapEx spending goes back to historic levels especially, absolutely, you’re right on target.

[Unidentified Analyst:]

Got it. Okay. And just lastly, you obviously had a robust improvement here in the June quarter. Have you made any sort of commentary about how sales have progressed in the month of July at all?

[Brenton Hatch:]

No. That’s an answer. No. We really haven’t. We haven’t -- we aren’t pessimistic about our future. Let me say that, we anticipate that things will continue, as I had said earlier in the call and you might have missed that, we do not anticipate significant changes from our Q1, Q2 levels and believe that we can accomplish those things. Given that the market remains relatively static in terms of oil prices in general, we feel that we can be quite optimistic about the remainder of this year.

[Unidentified Analyst:]

Okay. And just lastly related question, you obviously have quotes and so forth from prospective buyers and a pipeline so to speak. Can you kind of characterize how strong your pipeline is for potential deals relative to what you were seeing in the June quarter?

[Brenton Hatch:]

Cam, do you want to deal with that?

[Cameron Tidball:]

Yeah. For sure. Look, historically, Profire, the pipeline was always something difficult to ascertain and that’s something we’ve gotten much better at, especially over the last four quarters and we can see that with the double-digit growth quarter-over-quarter. We do have a strong pipeline. I’d love to say it’s a year out, it’s not, but it’s not living check to check, which is something we don’t want to do. So we are getting more and more involved with higher levels of management. It is one of our strategies to not just be dealing with operations in the field but to get in with the higher ups, so that we are planned and we can start to better forecast. So that is a huge undertaking to tackle. We’ve taken some great steps there. We’re seeing some positive news there. But, for the most part, I will comment that our pipeline is not as strong as where Profire and I wanted to be, but it is stronger than ever and we have some good signs sure.

[Unidentified Analyst:]

Okay. Great.

[Brenton Hatch:]

Thanks, Eric.

[Unidentified Analyst:]

Thank you for talking about the efforts.

[Brenton Hatch:]

Thanks so much. Appreciate the call.

[Cameron Tidball:]

Thanks.

[Operator:]

Thank you. Our next question is a follow-up from Jim McIlree with Chardan Capital. Please state your question.

[Brenton Hatch:]

Hi, again, Jim.

[Jim McIlree:]

Thank you. Hey. I think that the September quarter is typically better than the June quarter, is that right? Do we usually see a seasonal uptick in the September quarter?

[Brenton Hatch:]

Historically, that’s been the case, yes, Jim. Yeah, go ahead.

[Jim McIlree:]

So I just want to think through this comment that you made a couple of times, that maybe the second half looks like the first half. What you might be saying or implying is that the typical seasonal strength we usually see could be offset by and the industry that looks like it’s kind of topping out in terms of rig counts and prices, is that a fair characterization of what you might be getting at?

[Brenton Hatch:]

I think that’s certainly fair, Jim. We know that and you will recall from the first month or two of the year, there was some great optimism out there. And these companies started to spend based on, as I said earlier, the hopes that oil prices would stay in the low 50s and then climb from there to the higher 50s at the end of the year. Since that hasn’t happened, I think, they’ve -- these companies have been just a bit tentative, a bit more tentative than they were right at the very beginning. But we haven’t seen significant changes to the negative and so we remain quite optimistic, and do we hope that it gets better for the last two quarters that it historically has, of course, we do. But right now just based on what we’re seeing in terms of CapEx spend, we feel quite confident that we will be able to maintain those levels at least this year.

[Jim McIlree:]

Got it. Great. That’s very helpful. Thank you.

[Brenton Hatch:]

Thank you, Jim.

[Cameron Tidball:]

Thanks, Jim.

[Operator:]

Thank you. Our next question is from Scott Billeadeau with Walrus Partners. Please state your questions.

[Brenton Hatch:]

Hi.

[Scott Billeadeau:]

Hi, guys. Most of my questions have been asked. I just had one kind of getting back to sales efforts in CMS systems general. Is there a separate sales force or is this just another product in the guy’s bag and is there any difference when you are in talking about CMS versus the BMS systems?

[Brenton Hatch:]

We actually use same sales force but have two different tasks. They were the green one for the one and the red one for the other. We’d know it’s the same guy. But depending on what the needs are of the customers, they get to know these customers quite well and as they talk through their various needs, we have become -- we try to become a solution provider to these companies and so it isn’t just a matter of dealing with one issue as the sales force gets to know these people and finds out what their issues are, then they are able to take from this little bag that you referred to and pull out the product that would help them the most. And so, yes, we’re using the same sales force. But we also have two or three individuals in the company that specialized completely in CMS that are really very conversant with what it can do and how to make it function to satisfy the customers’ needs. So there is some specificity. But in most cases it’s the same force.

[Scott Billeadeau:]

Great. And then, you would think with CMS with $4,000, $5,000 ticket, that doesn’t really get to CapEx, does it, so as you can get some of these testimonials, does that become an easier sale or does even $5,000 get caught up on the CapEx discussion?

[Brenton Hatch:]

Well, that’s -- as you make a good point here. One of the things that we find is that the -- at the fields level, the individual operator does have some fairly strict limitations on CapEx spend. But, typically, they are the ones that can allow us to come in with a single product to test product, for example, to see if this is going to work for them. When it -- when they find its successful, we find that it moves up the ladder fairly quickly and then the company is able to make some decisions relative to bigger numbers. You are very right, $5,000 on the cost of a well, especially when you consider the spent that they make on chemicals. Cam reminded us earlier that next to manpower, that’s their next biggest spend.

[Scott Billeadeau:]

Okay.

[Brenton Hatch:]

It’s very significant and if we can spend -- if we can save them just a little, as he had indicated, we’ve had some really -- some increased interest in this level I think, because of the potential has for cutting their costs.

[Scott Billeadeau:]

Well, yeah, especially when -- right now, we’re kind of getting that build up in non-completed wells.

[Brenton Hatch:]

Right.

[Scott Billeadeau:]

This is a way to reduce the cost of completion, although moderately there are certainly lots of big numbers out there, so...

[Brenton Hatch:]

That’s for sure.

[Scott Billeadeau:]

Yeah. All right. Well, thanks guys. Appreciate it.

[Brenton Hatch:]

Thank you, Scott. You bet.

[Cameron Tidball:]

Thanks, Scott.

[Operator:]

Thank you. Our next question comes from the line of Jon -- excuse me -- can you pronounce it, excuse me.

[Brenton Hatch:]

We will go with Jon D.

[Operator:]

Yeah. Yeah. Thank you. [ph] Jon D (41

[Unidentified Analyst:]

Hi.

[Brenton Hatch:]

Hi, Jon.

[Unidentified Analyst:]

No. Hi. And I don’t hold it again, nobody know how to pronounce my name, perfectly, thought. Congratulations on the good quarter. I think I would imagine very validating for you guys. Early on in the call, you mentioned that you were seeking various certifications and then getting those would help you with work from the majors. I was curious if you could shed some light on what you meant by that, just because you are such a niche product, I’m trying to think about what certifications would be relevant?

[Brenton Hatch:]

Yeah. Let me speak in a kind of a generic way to that one. Typically, what we find when we develop a product is that we go to CSA or UL or some of these certifying bodies and we get the product itself certified. And that carries a little stamp of approval as they were and the companies all like to see that because it shows that the product is not only safe, but it functions well as we claim it will. But there is -- there are other processes that involve not only the product, but the process for developing the product and the rigorous standards of internal testing and internal functioning to develop this product and it is -- with that that is the direction we are trying to go in addition to certifying the product. So that the companies know that every process involved in developing that in building that is just above board in every respect and that’s what we’re trying to do. Some of these larger companies, especially downstream further in the refineries and so on. They do require that they have an absolutely flawless product that they can. And so we’re trying to certify not just the product itself, but the process and that’s what I was referring to earlier.

[Cameron Tidball:]

Brent, if I can add there.

[Brenton Hatch:]

Absolutely.

[Cameron Tidball:]

One of the other key things for us in doing that is it will shorten the time that it takes to actually obtain a certification on the product itself by having this process certification as well. So not only is it something that we’ll be able to show to customers and say, hey, we have this certification, but it will allow us to bring new products to market faster.

[Unidentified Analyst:]

Okay. I appreciate the color there. One just follow-up, in the past, it sounds as though regulations sometimes they seem to be state specific or I think there was something nationwide in Canada that require the use of burner management systems. I haven’t heard much news about that from you guys recently, is that because there just isn’t any news or what is the development spend there?

[Brenton Hatch:]

Okay. That’s interesting that you asked that. We kind of wonder the same thing, what’s happened, the problem is that the states and it is mostly the states and in Canada, it’s actually Alberta, specifically the problems of Alberta that came out with these requirements and the problem was that they came out about the same time as the market started to go backwards in terms of oil prices and some of these states and provinces rely heavily on oil for -- oil royalties for their revenues at the state level. And so, Alberta had specific dates in, say, Colorado or Utah or Alberta, they have backed off those a little in terms of policing. When it comes to, do we want to have some royalties or do we want to get little heavy handed with this company for not complying with the standard that we have established, they tend to go towards the revenue part. But I must say that most -- lot of the oil companies, the larger ones in particular been very good about going in the direction of this legislation and the reason for that, I believe, is that it’s not because of the legislation, it’s because they know what these products can do for them and there’s -- there are certain efficiencies that come and certainly the safety factor, which is a big deal for most of these companies gets there and so they want to not only be good citizens, but they want to protect their people and save some money and so we are finding that that the legislation, although, a nice little tailwind for us, was not at all essential to our making sales, if that helps at all, Jon.

[Unidentified Analyst:]

Yeah. Absolutely. I appreciate your time guys and again congrats on the quarter.

[Brenton Hatch:]

Thanks so much. Nice talking to you.

[Cameron Tidball:]

Thanks, Jon.

[Operator:]

Thank you. At this time, that does conclude our question-and-answer session. I would now like to turn the call back over to Mr. Hatch. Mr. Hatch, please proceed.

[Brenton Hatch:]

Thank you, [ph] Amy (46

[Operator:]

This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.