Q2 2020 Profire Energy Inc Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss Profire Energy's second quarter 2020 ended June Thirtyth 2020.
Joining us today is the executive chairman of Profire Energy Brenton Hatch co CEO and CFO of Profire energy, Ryan Oviatt and seat co CEO Cameron Tidball.
Before we begin today's call I would like to take a moment to read the company's safe Harbor statement.
And that's 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 effects of cobot 19 on the business and industry throughout the remainder of 2020, maintaining sufficient inventory on hand sales of the P.F. to choose zero zero product ability to enter alternative markets.
Spansion in international markets. The planned launch of new product the company's exploration of M&A opportunities and the company's future financial performance.
All forward looking statements are subject to uncertainties 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 me events or results described in our anticipated by the forward looking statements.
Factors that could materially affect such forward looking statements include certain economic business public market and regulatory risk factors identified in the Companys periodic reports filed with the Securities 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.
Reader 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 Twentyth 2020, starting later this evening.
It will be accessible via the link provided in yesterday's press release as well as the company's website at Www Dot Profire energy Dot com.
Following their remarks by Messrs hatch, albeit and tidball well open the call to your questions as part of the question answer session. Mrs Hatch, albeit and tidball well be joined by Profire Energy's Vice President of operations, Jay fuel and Vice President of product development Patrick Fisher.
Now I would like to turn the call over to the executive Chairman of Profire energy Mr. Brenton Hatch. Please go ahead.
Thank you and welcome everyone to our second quarter 2020 earnings call.
We hope you all continue to remain healthy unsafe as the covert pandemic continues to impact everybody's day to day life. As many of you are aware last month I announced my transition from CEO to executive Chairman here at Profire.
After co founding the company in 2002, and having led the company for over 18 years. The time has come from me to turn over the reins to two very talented and capable successors, Mr. Cameron Tidball and Mr. Ryan Oviatt.
I've worked with these gentlemen for a long time Cameron for over 10 years and Ryan for the past five years and know that they'll do a great job is co Ceos.
I am also delighted to assume my new position as a as executive Chairman, which will allow me to continue mentoring and advising company executives, while freeing up some time to assume and even more important role with the recent the rival that my first grade grandchild.
Brian and Cam the work together on many projects over the past several years, including M&A Investor Relations and the overall strategic direction of the company their skills are extremely complementary and Profires lucky to have both of them the board and myself have full confidence that Ryan and Cam will succeed.
I didn't hear new roles and I look forward to having them run the business.
Two which I dedicated nearly two decades.
As mentioned in the previous announcement I remain highly confident invested in the long term success of Profire by continuing to serve as chairman of the board and remaining the largest individual shareholder.
I will now turn the call over to the two of them to discuss the financial results and provide an update on company strategy in operations.
Ryan.
Thanks Brent.
Before I begin with my comments I'd like to personally think Brent for his excellent leadership of Profire over the past 18 years and four as Mentorship to me over the last five years since I joined the company has been a pleasure working with you and I look forward to continuing the close working relationship with you and come out as we.
Endeavor to deliver further long term value for our shareholders.
The second quarter of 2020 represents the most challenging operating environment and Profires history with significant portions of the global economy shut down for extended periods of time.
Last week, the U.S. Commerce Department reported the U.S. economy contracted by approximately a third on an annualized basis as stay at home orders across the country significantly reduce the demand for oil.
With storage facilities already near or at full capacity in mid April the price for crude oil contracts turned a negative for the first time ever.
The average oil price and the second quarter of 2020 was roughly $28 per barrel down 53% compared to the average for Q2 2019 and as mentioned earlier turned negative in late April well prices have recovered to the 40 dollar range over the past few weeks prices remain well below analysts for.
Cast from the started the year.
Having experienced the cyclical nature of oil and gas before we were well prepared to react to the challenges presented by covert 19 and responded swiftly to adjust the cost structure of the company. This included the whole travel implementing a hiring freeze cutting non essential expenses and compensation.
Reductions for management and non employee directors. In addition, we implemented a furlough program in June with the majority of our employees switching to a four day work week and some taking additional additional incremental pay reductions.
The onset of the covert 19 pandemic has provided additional pressure on the capital allocation models for S&P companies in most cases. These companies have halted their share repurchase programs and some of reduced their dividends in an attempt to preserve their cash on hand, and overall liquidity.
During the second quarter 18, DMP companies based in North America filed for bankruptcy the highest quarterly amount in four years, we expect the lingering effects of Kobin 19 will likely lead to additional filings for both M. P. An oilfield service companies in the latter half of 2020, which will continue to present chat.
Alan just for us, but could also result in growth and or investment opportunities for Profire with that let me turn to our financial results for the second quarter.
Yesterday after the market close we filed our 10-Q with the FCC and discuss the quarters highlights in a press release.
As always.
Both of those documents are available on the Investor section of our website. The transcript of this call will be posted in the coming days.
In the second quarter, we recognized.
4.4 million in revenue. This compares to 7.4 million in the first quarter of 2020, and 10.1 million in the same period a year ago. This quarter's results reflect reflect the full impact of covert 19 on our business versus just a few weeks of impact in the prior quarter gross profit decreased to 2.1 million.
You know as compared to 3.2 million in the first quarter of 2020, and 5.2 million in the year ago quarter. However, gross margin increased sequentially to 47.9% of revenues compared to 42.5% in the first quarter. This improvement reflects the actions taken during the quarter to reduce costs and adjust our exposure.
Hence structure.
Total operating expenses for the second quarter were approximately 3.2 million. This represents an almost 600000 dollar decrease from the first quarter and a 1 million dollar reduction from the same quarter of last year. These improvements reflect our continued effort to reduce expenses given the ongoing said.
Manned imbalance within the oil markets as well as our response to covert 19, including reduce labor costs travel and other non essential expenses.
Specifically DNA expenses for the second quarter decreased 16% from the prior quarter end, 23% year over year, R&D expenses decreased 44% on a quarter over quarter basis, and 55% from the prior year quarter.
Depreciation and amortization increased 23% sequentially and 63% as compared to the same period, a year ago, reflecting the acquisition of midstream and mid flow in the latter half of 2019.
Total other income during the period was 233000, the majority of which was attributable to gains related to the sale of fixed assets as well as interest income.
Net loss for the second quarter was 809000, our two cents per share. This compares to a loss of 365000 are ones that per share in the first quarter of 2020, and net income of a million or two cents per diluted share the same period last year.
Cash flow from operations in the second quarter was a positive 847000, despite the reduction in revenue.
Regarding the balance sheet cash and liquid investments totaled 18.1 million as compared to 17.9 million at the end of the first quarter and 18.6 million at the end of 2019.
The sequential increase is primarily attributable to a reduction in our accounts receivable and reduced capex spending capital expenditures for the quarter were 469000, which largely relate to final payments on the new facility in Canada.
Our inventory balance at the end of the quarter was 9 million down from approximately 9.6 million at the end of 2019.
I'll now turn the call over the counter Brian to provide an overview of our business.
Tim.
Thank you Ryan as Bret mentioned earlier, he and I have worked together for over 10 years at Profire.
He is example leadership and guidance have been Paramount to my own personal growth and development.
Thank you Brent for the way that you have led and served our organization.
Thank you for the face and trust that Youve put in all Profire team members to make decisions they consider our customers our team members and our shareholders.
We look forward to continued involvement and mentorship as we move forward.
Ryan and I have a shared vision for the future of Profire I'm excited to continue working with them in our new roles.
Right and I have worked together closely over the past five years on many strategic initiatives projects and company direction.
This change in organization structure is a natural fit and I look forward to our continued collaboration and execution in support of Profires growth in future.
As Ryan stated.
Markets remain challenged with the fallout from Cobot, 19, and the resulting competitive landscape for the oil and gas industry.
The company remains well positioned to whether these effects given our conservative roots and strong liquidity position.
We continue to maintain purposeful and strategic advantages such as sufficient inventory on hand, and strength of supply chain to be able to service our customers.
As a strategy we continue to remain highly involved with our customers. We have been able to maintain our salesforce and we were successful again and adding customers and maintaining our pricing power in the quarter.
During the second quarter of 2020.
The weekly rig count for North America decreased 267, compared to 878 at the end of 2019.
And 1063 rigs at the end of the same period last year.
Despite the reduced rig rig count.
We continue to see demand for our products and solutions.
We continue to work with our customers to design solutions that provide safety automation progression and operational efficiency.
These elements will continue to be critical to our customers as they endeavor to further digitize and develop operational structures that can withstand inevitable price volatility.
Our P.F. 2100 burner management system remains the industry leader.
We do not believe that our market position or share has changed in recent quarters as the reduction in capital spending has been experienced across the industry.
The P. F 2200 continues to roll out to customers.
We have received positive feedback on its performance feature set and usability.
Customers have already begun to specify the P. F 2200 burner management system for the remainder of 2020 and into 2021.
We are encouraged by this industry validation and believe that the that the design process rigor put into the development of the P. F 2200 will make it another industry leading product for many years to come.
As a reminder, the P. F 2200 has been designed as a platform that will eventually replace the 2100 in atmosphere upstream and midstream applications.
It has also been designed to potentially provide us with the streamline ability to enter alternative markets, where in combustion and burners requiring management.
The PS 3100 continues to be utilized successfully in applications across the upstream midstream and downstream utility space.
The <unk> 3100 core feature sets continue to resonate with many end users and Oems have higher specification process equipment.
Nevertheless, refineries and petrochemical plants continue to push out projects, given the lower throughput levels being experience due to diminished and product demand.
We still have indications of interest for our products internationally, but like last quarter. Most companies are in a holding pattern for any new capital spending in current environments.
A portion of our international business development has curtailed due to travel restrictions. However, we remain active in development of this channel and believe that a market exists that will be part of profires future growth.
We continue to assess other uses for our technology beyond the well pad and oil and gas production and processing infrastructure.
Less than 6% of North America's gas is utilized in the production processing and transportation of hydrocarbons.
Remains enormous potential for our systems to be tailored to other industries and combustion management applications.
Turning to our strengths of combustion and burner management knowledge will support future initiatives and development of products tailored to support other industries.
As we adjust our cost structure to reflect current business levels, we have aim to minimize potential impact to our customers.
One of Profires core strategic advantages has been our sales and service coverage and support of our customers.
There will always remain the need for specialized field services, such as repairs optimization and preventative maintenance.
We believe that the value our sales and service team presents to our customers as solution experts.
Will become even greater importance as the new normal enfolds in our legacy industry.
Earlier this week, we announced changes to our board of directors, which consisted of the resignation of Ireland be Crouch and the appointment of Coleen lurking Bell.
On behalf of the entire Profire team, we think arlon for nearly seven years of diligence service and for the Valley. He has brought to the Profire team and our shareholders. We think is your wife for sharing him with us and we wish them nothing but the best.
With Ireland's departure, we're excited to welcome Colleen.
Colleen came highly recommended by industry experts her skill sets experience and business philosophy is a great fit to profires culture and future growth strategy.
We look forward to an efficient transition and integration of her abilities on the board of directors.
Before we turn to questions Ryan and I would like to thank our employees for their continued dedication to the company their commitment loyalty and devotion in support of our customers and each other's humbling.
Their knowledge and understanding of the realities, a public company faces would be of NV to any organization and shareholder.
They continue to juggle responsibilities of home and work, while taking the necessary precautions to stay healthy we thank them and those who support them.
We also want to thank you as shareholders for your continued support and interest in Profire.
Operator would you please provide the appropriate instructions. So we can get the Q and I started.
Certainly thank you we will now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad, you will hear tone acknowledging your request. If you are using a speakerphone. Please pick up your hands that before pressing any keys to withdraw your question. Please press Star then too.
To join the question can you. Please press Star then one now.
Our first question comes from Rob Brown of Lake Street Capital markets. Please go ahead.
Hi, guys.
Good morning, Rob.
Good morning, and first question is sort of.
I'm kind of your demand trends right now I realize the market is weak, but but could you kind of characterize what's driving demand at the moment.
And what you're seeing in terms of in terms of activity drivers right now.
Kevin do you want to take that one.
Yeah, you bet Hi, Rob.
Obviously revenues down in the quarter, which was expected by consensus given what we're dealing with.
However that being said Theres still plays where it makes economic sense to drilling complete we still have producers that have.
Healthy a hedge prices to the market and there are still companies that do have a good cash positions and they see the value of investing.
Despite.
The low commodity prices. So the demand is of course from all of our customers were still sales order quantity is down.
Obviously, the sales pipeline in terms of open sales orders is down however that being said, we still are working with nearly the same amount of customers there just buying less.
Some of them I haven't really even skipped a beat especially in some of the Marcellus shale plays where this is not really a typical for them to deal with such low commodity prices in terms of.
Natural gas production.
Okay, good kind of a related question.
You know is things kind of play out here.
Based on your kind of prior activity or experience. How you know how do you see what sort of needs to happen before the revenue.
To start to increase again and and when do you sort of.
How early or late as commodity prices moved to typically that happen.
Well I'll give you a shot so Ed will run.
You bet there is.
Obviously, while higher oil prices everybody needs to be profitable. However, those prices go way up in drilling just goes right back up and supplies killed with just too much supply and no capacity at Cushing or pipeline and then just drive that buy back down we've seen that happen.
Obviously this is a different state, whereas with the amount of bankruptcies that have already occurred the consensus believed that there is probably.
A lot more to come in this year.
What we need to have some stability in price that is truly backed by demand and that will come as we'll see as things progress here in the fall with going back to school universities opening up domestic travel can pick up and business travel all those things will be key drivers in that.
Product demand and throughput of refineries, which then will lead to the need to the production as well, but we also see that theres going to be a consolidation here weve.
In the quarter, we saw a chevron acquire the the DJ basin in all the assets of noble.
That's a.
Key that was a key win for us in our opinion, we have both as customers, but we still see mega corporations, having interest, especially in the DJ basin, which has been hard with regulation and obviously, there lifts costs tend to be higher so theres a lot of things that need to happen we're interested to see.
He has everybody is what does this election bring.
But we need some more stable stability that actually backed by real demand and a lot of that will happen as we all kind of joked about as we need 2020 to die we need this to play out you need to see.
Some change here and we're all tired of co bid Raul tired of.
Of this balancing of one headline saying, there's too much supply in one saying, while now crudes jumping because we've we've dropped supply.
Some stability will will help us immensely.
Okay. Good good that's good color color.
And.
Maybe this is a question to Ryan.
What's sort of your plan on cost structure here in the interim are there more costs you can take out to you.
Last time around you really continued to invest in your sales and service effort.
Where are you at in terms of that balance and is R&D part of this as well in terms of.
Development this down downtime or do you sort of slowdown.
Yes, certainly good questions there.
Obviously, we talked last quarter about some of the early things that we were doing to.
Change the cross cost structure, we were taking.
Cuts on compensation at the management level, and our executive management level on the board level, we were taking discretionary spending and travel all of those things out and that's continued up to this point and it's going to continue probably through the end of the year.
As we said in our earlier remarks, we did.
Expand that in June to include a furlough program for our employees that programs in place through the end of August.
So we'll continue to see benefit or reduce costs from that as well. We are right now in the process of determining what happens at the end of that furlough program.
At the end of August how do we continue to embed the cost savings that we have achieved thus far.
And how how we need to roll that out so thats under work right now, but our our thought process is that we do need to find ways to continue to embed that.
Probably a different mix of initiative than than what exists for that program right now, but again, we're still working through all of that and as Ken mentioned in his last comment. There's so much that is impacting our industry right now related to the Colgate uncertainty.
And a lot of that uncertainty we believe will.
Either dissipate or become more clear in the next three years, so a month.
As he said with schools reopening with the return of the cold and flu season, or the traditional season and the U.S. election.
Also progress on on antibody or.
It treatment for the for the disease. So all of those things, we expect to see more much more clarity and even some.
Increased visibility over the next couple of months will really help.
At least make things more clear as to how long this is going to take their depending on how those move it could make things much worse.
But it also could make things much better so as we look at it we see a very short term need to continue to manage the costs and to maintain the level of cost cuts that weve secured thus far.
At least for the next three to four month and in addition to that what we've been able to demonstrate and realized in the Q2 results doesn't reflect the full benefit of even what we've achieved during Q2.
The furlough program only going into place in June.
We have less than a four month of that benefit embedded into the Q2 results. So we should be able to realize even.
Some further cost cuts in Q3, as we will have a longer period with that program in place.
Okay. Good. Thank you I'll turn over and Brent best wishes and your new role.
Hey, Thank you Rob.
This is the fun fluids.
Our next question comes from John White of Roth Capital. Please go ahead.
Good morning, gentlemen.
Hi, John John.
Good morning.
So good news on that.
2200, that's good to hear.
As I'm sure you've been doing yourself, a I've been talking to a lot of E N P companies and.
Seems to be consensus that with a that'd be a T.I. crude prices in the range of 35 40.
We'll see people completing the drilled but uncompleted wells.
And with Debbie at T.I. crude again, the 40 to $45 range, probably start to see new wells drilled does or does that match up with what you're hearing.
Yes, it depends on basin for sure.
But in general that as that is accurate some basins need more the Bakken depending on where you're out has some different price points in the Eagle Ford, but for the most part D. J Permian basin. Those are all plays that can be effective at those price ranges you're accurate those are the same.
Numbers were getting.
Okay. Thank you and ER with your strong balance sheet and or the.
The industry as a whole suffering.
Would seem to bode well for your future acquisition activity or.
Any comments you want to off from that would be appreciated.
Absolutely, we we we keep our eyes open obviously, we want to be.
Our full but not to careful with cash you want to be able to not Miss a great opportunity. We are working with is still remains a big part of our strategy is to seek out.
Bolt on opportunities that could.
Perhaps be less volatile or or impacted by drills and completes yet still be on the wheel house.
What we have strengthened mess automation.
Looking at emissions looking at different opportunities, which we know are on the forefront of.
Lines of politicians as well as just the environment itself, so definitely keeping our eyes open for for a good pickups there.
Okay.
Thanks, and good luck in your hunting.
Thanks, Joe.
Our next question comes from wrong Zola shareholder. Please go ahead.
Hello, everybody right to meet your Telephonically.
Yeah, I've been a shareholder for a number of years can you guys. All hear me okay.
You bet absolutely.
Great first of all I wanted to start off by saying boy you've been dealt a very difficult.
And being at the end of the industry down cycle and now this macro hit.
I wanted to your revenues are down, 50% well over 50% quarter on quarter.
And when you look at a year to year comparison, and I'd like to start off with a big complement on management and keeping your cost aligned with revenues.
That's easier said than done it's a lot of pain and hard decisions and also in combination with that you've just purchase no stream and mid slow and all of their employees and integrating those organizations into yours and this type of environment can have a spec.
Actual challenges so as a shareholder I'd like to thank you all for your hard work.
And and results.
My question.
I relate to this quarter's revenues I'm first.
I was just curious and this is a bit of a naive question, but it.
What percentage of your fourth quarter revenues would be re occurring that is related to service contracts part replacements and repairs.
Or replacement of existing units for existing customers versus a new new units sold.
Do you have a handle on that that's up there's two parts to this question and then second part is when you acquired.
No stream and mid flow you were expecting a revenues.
Selling their products.
And there was going to be some cross selling potential opportunities.
And when you made those acquisitions I think you estimated about a million to 2 million per year in additional revenues and I would like to know for the for this most recent quarter and I know everything's change those <unk> a estimations were made in the different environment, but I would just like to know.
What percentage of the 4.4 million in this quarter consisted of.
No stream and that slow products and then after you answer that those factual questions I have a couple of strategic questions related to stability of revenues, if I could follow up with with that question as well I'd appreciate it.
Yes, Sir.
Tim I'll I'll start but.
Certainly you can jump in as well and give you some time to comment so on on the.
Revenues from mid flow and we don't.
Report or or.
Publish separately those pieces of our business, we've pretty much fully integrated them into our overall business and they have their products and services have become a part of the standard offering that we are selling to all of our existing customers that we had before and even to the customers that they brought on with.
So it has expanded our overall product offering and total sale to a customer and we don't I can't give you the numbers compared to what we set a year ago of what we thought it would add I think we're certainly below that given this current environment into in this last quarter.
But we are selling those products they are very good products and our customers.
Really liked them. So they are selling they are contributing.
Certainly to our product offerings and.
By inference, if we didnt have them our revenues would have probably been even lower from than what they are right now.
Tim do you want to add to that and then even talk about the.
The new system versus service revenue side.
You bet so.
So definitely the products from the Millstream acquisition that we targeted that we believe we're would be adopted in industry have been we're selling goods and as Ryan said, if we didnt have those our revenue would be lower.
Our average sales order and again, it's kind of its really impacted by the quarter, but we believe it as a whole and as we come out of this has increased so for every control system. We sell our goal was to increase that that average sales order for ER and per BMS.
And we've definitely achieved that to what degree. It's again, it's very complex to come up with that in terms of new versus old.
We've seen this cycle in Profires history. When we started this whole thing it was all replacing of us of so working on applications that have nothing on it now weve see and we've we've evolved to replacing competitors.
We don't have.
The traditional which we would love to have recurring revenue based on subscriptions.
The upstream and midstream.
Industry, They don't love that stuff for sure they habits. They don't love it but it is something we are searching out in our our strategic like our acquisition potentials are partners that were looking to to bring on or resale opportunities. We are looking for that type of of offerings.
In terms of preventative maintenance, that's a very close.
Comparison that Profire currently has to a recurring revenue model, we do have ongoing.
Purchase orders contracts would you ever you'd like to call with with the employees across North America, where we are continually going to their their heater applications on a.
Either quarterly by annually or annual basis.
That was a big part of our revenue plan for 2020.
Unfortunately things have changed and there's a lot of the mentality right now if it's not broken don't fix it.
However, we've seen some positive trends in that regard as people begin to.
Turn on and restarted these wells they've shut in.
So I hope that answers your question a little bit there.
Yes. It does it was a very great comprehensive answer and they've already actually Ah I think address my second component to that question and that is there.
Strategic you know a business or.
If it hasn't mode as we all know a competitive moat. That's a really really good thing. So if you're in your traditional model, where you're selling product when you hit it down cycle and volume. The question is are you able to increase your price theoretically.
Okay.
You know if you are solving a significant problem, a safety and efficiency and you're you're you're there buyers spend is a small component of their capital budget. If you have a competitive moat you can stabilize your revenues at least a little bit by increasing price store.
During down cycles without adversely affecting volume.
So I'd like you did talk about that and whether you have actually done any of that and then the second thing you've already kind of led to and that's the recurring revenues have you ever thought about it.
Instead of selling burners, placing burners with a full complement of services and converting that to that but you had already had said as subscription type model. If you have a competitive moat, even if the.
Buyers don't like that.
You know if it's a competitive moat the buyers will go along with it. So I'd like you Digest aerostat because that will produce stability at revenues because you have over 71000 units in place and if they were on.
I re occurring revenue stream I think the value of your business would be enhance significantly. So if you could just comment on those I'd appreciate it.
Sure I can give a quick stab and then Ryan jump in.
The.
Recurring revenue have we thought about can we just itself the can controller as a service as a SaaS model with with Oh.
Free updates or or low cost updates and service and Pmts, we definitely saw them, we broached the subject with customers to.
I would agree what we normally find is that the capital expenditures still the preference for them. So we haven't thrown that out in our core product and but it is something that has been looked at is not simple for sure.
Have we increased prices during the downturn here.
Not so much in terms of our legacy 2100 product we've left it alone we havent decreased to.
Our 2200 does have a higher MSRP and the average because it comes with more power. It is it drives more results and we've really honed in with our sales team to sell the results of the product not the product and its features and so we believe in the future.
That will help us, but we also realize every business has increased the cost. So we're not saying this will be a significant driver of increased margin, but we believe it helps us maintain and.
Stabilized those levels.
Brian did I Miss anything there that you got.
Ron as Great question, I think you covered it.
Yeah, I think you cover that really well and and as you said it it's definitely something that are newer products.
I will give us a greater opportunity to explore further the legacy products and what we've been doing over the last 10 12 years that opportunity Didnt really exist as much theres a lot of barriers there just given the overall size of our equipment compared to the vessels that it controls and our ability to.
[music] either shut it down or turn it off it customers aren't paying bills and things like that so it's not as simple or easy as some might think but with the new systems. We are certainly exploring that more so thank you Ron.
Our next question comes from Samir Patel of Askeladden capital. Please go ahead.
[noise], Brent Cam, Brian Congratulations to all of you on the new roles.
Well this year.
So I have three questions I think they're all for Cam.
Kim first one real quick I couldn't tell US you answered this or not previously or you sequentially seeing completions trends going up in Q3 versus Q2 or would you expect revenues to be down.
I I know Youve love it, but just from what you've seen so far yet.
No. We believe actually Q3 should have a slight uptick in completions compared to Q2, we believe that revenue.
Based on current forecast.
We're not expecting massive growth, but it's still early to tell our projects. Unfortunately, a lot of our customers, they're going through massive restructures and contacts are being lost and we're having to gain new contacts and pick up where they left off this is.
A bad thing because we lose friends and we lose people we have close relationships. It's a good thing because as I mentioned in my remarks, we fully believe that they're gonna have to rely on us even more that west manpower to.
To do what they've done historically, they're going to need experts and that's a big part of the value.
That profire brings of course.
Perfect Okay.
Second question more of a macro question.
Given the steep decline curves of shale you would expect that they kind of fly off the back of the treadmill at some point if the rig count stays where it is right. So I was curious if you have any insight I've seen a statistic that says you need about 600 rigs drilling just to maintain U.S. production at the levels at was in 2019 I'm I'm curious if you kind of have a number like that in terms of rigs.
Completions activity or what you think is needed just to maintain U.S. production as opposed to grow it.
Yeah. It's a great question, you see tons of research and articles out on that if you've noticed today Exxon came out saying, if we don't get some stability in prices, even increase 20% of the worlds reserves could be in jeopardy, I don't know I'm not sure a completely subscribe to that right now, but they have.
Got a lot of big mines, there that probably airway smarter than I. So there is something that said that to be sets that now what that number is for drilling rigs in the United States. All for sure it's got to be higher than where it is today U.S. will continue to be a major.
Supplier and swing producer of oil and gas.
Well, just something technology is going to have to evolve for sure because of that steep decline. It's just the price point to drill those wells they can't being a they can be down drillers to lower the price anymore than they already have can technology evolves and become better for sure is there are ways to prove the red.
I have worked quicker probably so what does that level a lot of that can depend also what is the world doing whereas the world buying its oil from.
If we see obviously places like Libya, Venezuela they can.
Then Africa Northern Africa, they can change on a dime of based on.
Yeah. The type of countries. They are in dictatorships. They deal with so I don't know exactly Samir where that number needs to be it has to be higher than where it's out, especially as we come out of covidien demand increases.
Sure. Thanks, that's perfect final question Cam is I was little surprised to hear you mentioned the other markets I remember you kind of played around with grain silos, a couple of years ago, but I think you'd abandon that just because the margins weren't really up to a profire standards. So if you could maybe talk about what you're seeing there in terms of the competitive environment you know the opera.
Tunis Sad and then maybe whether you think you're going to be able to achieve the same type of margins in that market.
As you do in your core also business because I got that was a headwind to penetrating those thanks.
Yeah, you bet.
There definitely is.
Headwinds exists when you have to consider margins and.
Your sales do you have a divergence sales strategy.
Who do you put towards those efforts.
Did mentioned in my remarks, and this is a statistic from the <unk>.
Very small percentage of gas that is used for processing for production or other uses is actually up well pad or in the pipeline food chain.
So what does that mean, what that means there's a lot of other places where there's an opportunity to light a burner control of burner and provide automation. We know these exists we've done lime dryers, we've done a grain drivers we've done quite a few this summer actually so we haven't quite a band and not so we're not marketing aggressively.
But we have come and made partners with people who can at least opened the door and then we can come in with the engineered solution.
But there are a lot of.
Commercial opportunities that exist light industrial heavy industrial were burners are needed.
So it is.
One thing that Profires, considering and it's why we built the 2200 with its open.
Platform. If you will we have an easier past beginning to those now how are we going to figure out which ones to go after.
Well, we're looking at ways to systematically taken opportunity and industry, whether its biogas grain dryers.
<unk> pulp and paper mills, and where you're putting in a program in place to take a look at these things analyzing them properly if they're a great opportunity will double down and go forward. If there are a dog will fill quickly and sell forward is a much of we're putting forward in the organization. So we are looking for other opportunities beyond the well.
Todd.
The oil and gas business, we're still optimistic it'll come back it's going to be different and we are not going to abandon that is what has made a successful it's the strength of ours, but.
Looking outside the <unk>.
On the oil well pad is important to profires future and we believe we have.
The know how as well as the products that could be adopted or potentially could be used right away.
House so.
That's what I would comment on that question.
That's great and all the competitive environment I mean, how are those kinds I know, it's a very broad market, but how are those customers being served right now.
With further brine management needs.
Yeah. It depends on the industry highly plc based highly antiquated technology related based logic not to get technical.
But it's it's a variety of things a few were to go to <unk>, you will find farmers lighting grain dryers by hand, you'll find them with a [laughter] rag and.
Yeah, you'll see it for sure.
You go to a we have sales team.
Oh, that's an asphalt plant today, it'll just be old antiquated technology in place, but there are some there are some incumbents for sure and we plan to as part of our research and analysis of these opportunities to see well what is the incumbent well we know we won't be able to probably for the most part get into new Gray.
Dryers, because the incumbent that's there it's all baked in its done but on the retrofit side there might be a great opportunity. So with each opportunity. We look at each industry that is a big part of the analysis is who is already there what's the space what are they charging what are the building is there an opportunity to get in with an OEM and build something.
With them for them.
All those things play a part of the analysis.
Makes sense. Thank you guys.
Thanks Amir.
Once again, if you have a question. Please press Star then one.
Our next question comes from John Blair I listen to wealth management. Please go ahead.
Thank you.
Hey, there congrats Brent on your transition to ride and Cameron as well in your new capacity.
Thank you number my.
Questions have been.
Addressed a little bit.
First off on the international it sounds like that's pretty much kind of.
On autopilot right now not really much going on in that regards as that.
I understand that right.
Definitely not the indication we that we wanted to completely give it's been curtailed a little bit we had aggressive plans to be out with our distributors that we brought on in 2019.
But.
We believe there's still opportunity there, it's just changed how we're going to approach it to a degree we're working on some what we believe to be good sized projects right now that's.
We don't hold all the cards or have all the direct insight because we're not working with the end user but based on our distributors.
Feedback.
This could be some potential good opportunities for profire in the upcoming quarters, we had actually in one of our offices or one of our distributors that covers.
Parts of Europe This week.
And they give us good indication that things are starting to open up a little bit.
Court quarter to results as we mentioned in word one significant enough, but we're still positive that theres opportunities coming forward and optimistic regarding those.
Okay. So the addressable market, obviously still there and just kind of deferred yes.
Right now okay.
You addressed this a little bit in the prepared remarks about the press release and intro about adding new customers and so wondering if you can elaborate a little bit on that as this is that more new customers in existing.
Geographical areas that you have historically worked in or be picked up new customers in new areas.
And our these.
Sort of.
New products, perhaps with existing customers, but.
Yeah.
[noise], it's a great question, we track that on a monthly and quarterly basis, new customers on the revenue they bring in obviously.
It's something has been a great strength of Profires. We continually do this is because we have a sales team and the service team that's out continuously in the quarter itself.
We did we brought on some new customers, they're all in current geographic areas and doing the same thing some of it's a balance of end users as well as resellers of our product companies that actually install and and work for the end user. So we had a key.
Combination of that in the quarter and we did have we do regularly have new customers come on that or doing something a little bit different as we mentioned, it's a strategy of ours to look beyond the well pad.
Well, we ought to customer a new customer in Q2 that is doing some interesting things with our PS 3100 that could be something that's used in the downstream utility business.
To help with.
And it's not even our core.
Downstream utility business, but it's actually at the pump.
So it's very interesting there's not a lot of details I can give on it today, but we see new customers that see us and we run into them and we're asking our sales and service team to broaden.
Their view to open their eyes to whats also around that is using control with burner.
With burners and burner management.
Okay.
And then.
With with the companies.
Piece having.
Scaled back their Capex in general are you seeing some <unk>.
Shifting of their spending dollars, perhaps money that they're saving on actual exploration.
Activity and addressing some of that taking some of that capital savings.
And doing some kind of maintenance and upgrades and whatever you get any sense that that's going on at all.
Not to the degree it used to be done that's for sure. We often would see at the end of years companies go through a large amount of budget because they had it.
We don't see the large retrofit programs happening right now because of the decrease in drilling.
We have some but for the most part as I mentioned earlier a lot of them are putting in place if it's not broken don't fix it if it's not a higher producing well we might not invest and at this time, a the economics just aren't there, but it is something as we progress forward here as they get their corporate structure.
Again more in line whatever that means in the future we could see that.
Okay and last question here is.
Touched on it again and previous question, but can you speak to the to the market environment as far as a and what the quality of potential.
M&A as with all these.
Service companies a lot of small ones, probably a lot of privately owned ones.
Having difficulties.
What's your sense as to the.
Quality of potential acquisitions, and I'm, assuming two that you're not looking for a fixer upper type opportunity, but for example, picking some assets or company up out of perhaps a bankruptcy.
Situation.
What are you seeing in that regard.
[noise] fall can Brian do you want to help and you start that one.
Yep Yep sure.
As you said were were there are certainly a lot of opportunities out there and we think that there will continue to be opportunities as that continues to roll on especially with all the uncertainty that still exists at least through the end of this year.
But we certainly aren't looking to do an M&A transaction, just simply to become bigger.
Weve maintained our focus that M&A is.
A great potential opportunity for us to grow but that we want to do it strategically and grow in ways that we think are meaningful to us and also to the industry. So we're looking at what are the technologies that are going to be needed and even coming out of this covitz situation as Kim.
Said the industry that we've been a part of for so long as going to be different a bit different and they're going to be needs and desires for new technology that help with a transition that we'll be taking place over the coming years, and so we want to acquire or invest in those areas specifically so if.
By chance there is a company that has that type of technology. That's emerging from bankruptcy. Then maybe that is a good pickup or opportunity, but we don't want something that the fixer upper or just that's going to make us a lot bigger of what we are right now we're being very strategic and focused on new technology.
Gee on what we see the industry meeting in the next five to 10 years and how we can be strategic key players in that effort.
I am do want to add.
I think you fit perfectly with hitting a.
Fixer upper is probably not the best idea for Profire right now and just growing.
Numbers for that are in that regard, it's more along the technology side and what the future is going to need where where our strategy lies.
Yep.
That's what I figured and that's that's good to hear so.
I think we're all going to have a lotta industries are going to look a lot different.
On the other side of this what wherever and whenever that might be so a good luck and keep going on and enjoy that great grains child their Brett I can appreciate that I have a new grandchild.
Not a great grandchild, but it grandchild to though I, Oh, theyre all great as far as I did.
Thanks, John Thanks.
Alright, thank you.
Yeah.
Okay.
This concludes the question and answer session I would like to turn the conference back over to management for closing remarks.
Thanks, everyone for joining us on our call today to discuss our second quarter 2020 results, we would like to thank all of you for your continued support as always we are available for any discussions or questions. You may have we will be participating in a few virtual conferences investor conferences in the coming months, including the mid.
West ideas conference the LD Micro conference and the Lake Street Conference, we look forward to catching up with many of you at these events.
Thank you again and have a great day.
[noise]. This concludes today's conference call you may disconnect your lines, thanks for participating and have a pleasant day.
[music].