Q3 2020 Profire Energy Inc Earnings Call
Good afternoon, everyone. Thank you for participating in today's conference call to discuss Profire Energy's third quarter ended September Thirtyth 2020.
Joining us today, the co CEO and CFO of Profire energy, right, albeit and co CEO Cameron Tidball.
Before we get to the begin today's call I will just take a moment to read the Companys 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 expansion in international markets.
Exploration of other markets.
Please review M&A opportunities the potential of international markets and the company's future financial performance.
All such forward looking statements are subject to uncertainty and changes in circumstances.
We're looking statements are not guarantees of future results or performance and involve risks assumptions that's.
Certainties that could cause actual events or results to differ materially any events or results described in or anticipated dissipated 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 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 90 95.
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 November 24th 2020, starting later this evening.
It'll be accessible via the link provided in Yesterdays press release as well as the Companys website at Www Dot Profire energy dotcom.
Following the remarks by matures over <unk>, <unk> and Tidball, well open the call to your questions as.
As part of the question answer session Ishares O <unk> and <unk> will be joined by Profire Energy's Vice President of operations, Jay Cool and Vice President of product development Patrick Fisher.
Now I would like to turn the call over to the co CEO for Profire Energy Mr. Cameron Tidball. Please go ahead Sir.
Thank you operator.
First we would like to offer our wishes that you and your families all remain safe and healthy during the ongoing pandemic.
And express a special thanks to our employees for their efforts as they continue to balance.
Their responsibilities at work and at home.
I will start the call by providing some updates on the industry and our business followed by a review of the financials by right, albeit.
And then I will discuss the outlook and our strategic direction.
The ongoing uncertainty.
Surrounding the U.S. presidential election, and the COVID-19 pandemic continues to weigh heavily on global markets.
Well the most recent GDP report showed a strong improvement over the second quarter, we are starting to see states and countries re implement stay at home and other covered related restrictions.
We believe that these restrictions will likely constrain the demand recovery of hydrocarbons.
The average oil price in the third quarter up 2020 was roughly $41 per barrel down 27% compared to the average for Q3 2019.
Preliminary forecast from Wall Street analysts have prices for west, Texas crude reaching the mid to upper $40 range in the latter half of 2021.
M.P. companies continue to face meaningful constraints with their capital allocation models.
In addition to the suspension that dividends and share repurchases. Some companies are also facing line of credit and term loans that are nearing maturity at a time when banks may be reluctant to roll over or renew these borrowings.
Without access to capital more M.P. companies could face the prospect of bankruptcy.
Well, we didn't predict the emergence of COVID-19, we have lived through and survived the previous ebbs and flows of the energy industry by maintaining a debt free balance sheet and we are confident that this strategy positions us well to survive. This current cycle.
As previously mentioned, we have also taken multiple steps to adjust the cost structure of our company.
In addition to cutting nonessential expenses, we have significantly reduced our labor costs through a combination of attrition and furloughs.
The majority of our employees also took pay reductions and switched to four day work week for significant periods of time.
With these reductions it is important to note that we have not experienced any significant disruption to our business our customer support model.
With that let me turn the call over to Rhino via our co CEO and Chief Financial Officer to discuss our financial results for the quarter right.
Thanks Kim.
Yesterday after the market close we filed our 10-Q with the FCC and discuss the quarter's highlights in a press release.
As always both of those documents are available on the Investor section of our website.
A transcript of this call will be posted in the coming days.
In the third quarter, we recognized 4 million in revenue.
This compares to 4.4 million in the second quarter of 2020, and 9.9 million in the third quarter of 2019.
This quarter's results reflect the ongoing impact of COVID-19 on our business.
Gross profit decreased to 1.5 million as compared to 2.1 million in the second quarter of 2020, and 5.2 million in the year ago quarter gross margin decreased sequentially to 38% of revenues from 47.9% in the prior quarter. This is primarily due to product.
Mix and typical movement in inventory and warranty reserves.
In addition.
Significant revenue decrease caused the fixed cost portion of our cost of goods and services.
To push product margins below historic levels.
Total operating expenses for the third quarter were approximately 2.8 million.
This represents a $300000 reduction sequentially and a $1.2 million reduction from the third quarter of 2019.
The sequential and year over year improvement reflects our continued effort to reduce expenses in response to COVID-19, and the supply imbalance in the market.
These reductions come from reduced labor cost significant reductions to travel and other non essential expenses.
Specifically DNA expenses for the third quarter decreased 18% sequentially and 31% year over year.
R&D expenses increased 89% on a sequential basis and decreased 32% from the prior year quarter.
Significant fluctuations in R&D expense is due primarily to the timing of product certification.
Depreciation and amortization decreased 7% sequentially and increased 30% as compared to the same quarter a year ago.
Reflecting the addition of the new building in Canada, and the integration of assets acquired in the purchases of midstream in mid flow.
Total other income during the period was 91000, the majority of which was attributable to gains related to fixed asset sales as well as interest income.
Net loss for the third quarter was approximately 1.1 million or a loss of two cents per share. This compares to a loss of 809000 or two cents per share in the second quarter of 2020.
Net income of 922000 or two cents per diluted share in the third quarter of last year cash.
Cash flow from operations in the third quarter was a negative 724000 due to the steep decline in revenue, which outpaced cost reduction efforts.
Regarding the balance sheet cash and liquid investments totaled 17.2 million as compared to 18.1 million at the end of the second quarter and 18.6 million at the end of 2019.
Capital expenditures for the quarter were 152000.
Our inventory balance at the end of the quarter was 8.8 million down from approximately 9.6 million at the end of 2019.
I will now turn the call back over to Kim to provide an overview of our business Cam.
Thank you Ryan.
The oil and gas industry remains challenged by economic and demand headwinds in the third quarter of 2020, Yeah Weekly average rig count for North America decreased to 287 compared to 878 at the end of 2019.
And 1024 average in the third quarter of last year instead.
In September the rig count increased slightly the first such increase since March.
Despite historically low rig counts and resulting impact the completion activity there remains a need for our products and solutions.
Producers continue to utilize our burner management systems as new production is brought online.
And as legacy equipment is upgraded.
Installation of Profire Vms solutions is critical to meeting safety and efficiency initiatives, while satisfying regulatory requirements.
We are pleased to report that our recently released BMS controller. The P. F 2200 continues to gain traction in the upstream midstream and natural grass gas transmission segments.
We are encouraged by the initial performance and feedback received by customers.
As an update to our international growth initiatives.
We continue to support our distributors as they quantify individual markets and strive to displace incumbent technology or complacency.
Our distribution partners in Latin America continued to place orders in 2020.
Through our Latin America distribution partners, we installed our first 2200 products in multiple markets.
Year to date, we have added over 100, new customers, which matches the pace of the prior year.
We believe that this is indicative of our strength of brand and product performance as customers continue to choose to adopt our technologies.
These new customers our mix of end users and resellers, who reside in the upstream midstream and downstream transmission space.
We continue our focus to maintain and grow our existing burner management related market share in our core upstream and midstream markets as.
As well as the downstream distribution pipeline and transmission segment.
We also continue to assess bolt on strategic partnerships, which support our product offerings.
We're researching opportunities and engaging with potential partners to expand our capabilities and support our diversification strategy.
This includes potential solutions, such as emissions monitoring I'm reduction.
Optimization of EM up operations through machine learning and artificial intelligence and improving overall site safety and security.
We believe that these solutions will become increasingly essential for the industry as it works doing bad important U.S.G. initiatives for years to come.
Another growth opportunity for US is the development of strategic partnerships with organizations, who operate and have a combustion presence in industries outside of oil and gas.
I'm examples include aviation power generation infrastructure mining construction and food and beverage.
We have experienced initial success with some of these objectives.
We have developed relationships with partners focused on how to optimization in emissions monitoring through AI and machine learning and have commenced high level customer discovery meetings with our customer base to validate market suitability and acceptance.
We're in the process of validating the use of Profires control technology in a heating application that has the potential to be used in aviation construction mining and soil remediation.
We will continue to work on developing a go to market strategy for initiatives outside of our core business and we look forward to providing updates on these efforts as we go forward.
Finally, the turbulence in the oil and gas market created by the pandemic and subsequent reduced demand has led to multiple companies either filing for bankruptcy or positioning themselves to be acquired by strategic buyer.
We believe this environment could create strategic opportunities for Profire.
We are fortunate to be in a position with our balance sheet to act if the right opportunity comes along that makes financial and strategic sense.
Despite our reduced revenue and spending levels, we remain committed to our sales strategy and have not made adjustments that would prove detrimental to this effort or our customers having.
Having technical and field support available to support our customers remains a competitive advantage for us.
Before we turn to questions.
Right and I would like to once again, thank our employees and investors for their continued dedication to Profire and hope you all stay safe.
Operator would you please provide the appropriate instructions. So we can get started with the Q and a.
Yes. Thank you at this time, we'll now be conducting a question and answer session.
I wanted to ask a question today. Please press star one from your telephone keypad and the confirmation Tom indicate your line is in the question queue.
The press star two if you'd like to move your question from the queue from.
This was using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment. Please so we poll for questions, what's Gonna Star one.
Thank you.
My first question is coming from the line of Rob Brown from Lake Street Capital. Please proceed with your question.
Hey, Rob.
Good morning, Rob.
Uh huh.
The first question is sort of on the visibility on the demand environment. Realizing it's not great are you are you seeing any sort of recovery from from cobot kinda settling down or do you still see the visibility. We can is there any kind of sense on on the how the year end budget flush this year.
Great question, Rob I'll take a crack at it here and Ryan will have some comments as well but.
The demand recovery is.
We look at it right now its still Cove. It is no pun intended shrum trumping things that are going on right now in the the economy.
The the demand recovery from our customers from the perspective are they drilling more obviously not you can tell by the rig count, although we had a slight uptick which was kind of in the August timeframe.
Drilling picked up a bit to really make up for storms in the Gulf.
And we saw some of that is we had a little bit stronger into the quarter. Then we started however that being said overall, we really need we need the market to open up.
To to really bringing that that call for demand for end products gasoline transportation, especially commercial transportation et cetera, and right now it looks like we're seeing the opposite unfortunately, I'm a little bit of a pulling back. However, the positive news of a it's testing continues to go well.
For this this vaccine will definitely help us.
Right anything to add.
Yeah, I think you covered most of it for sure and I think the vaccine is really key as is.
Positivity comes around and we get more news about it being effective assuming that there is an effective one that's on the near horizon, that's going to be critical for demand and getting confidence back for people to not be worried about further shutdowns in their local communities are in states or you know even in.
Other countries and then also being able to have confidence in traveling again and resuming life in a more normal state is really what we need to see to see the demand side improve.
And hopefully we're on the verge of seeing that there was very positive news yesterday from Pfizer about a their vaccine and its effectiveness and so hopefully.
Some of that said there they're predicting we could continue to see more positive news and actually get some of that vaccine out into the economy and into the hands of people before the end of the year so that.
That would be very positive for us and helpful. But that's the kind of stuff that really needs to happen to change the demand profile right now.
Okay, good and.
And then on the Uh Huh.
On midstream, we kind of acquisitions are they or are you maybe just an update on where those are and how you are seeing those activity.
Yeah, the midstream acquisition, which was basically an inventory purchases as weve discussed before a we we just finished really our first year of that acquisition and I were pleased to report that customers have really taken well.
To the the burner technology, which is really what we wanted from that acquisition and the the air airplane control technology that goes with the the burner itself and some of the other manufactured goods, which we are now the OEM.
For those products.
It's a really if we look in our history, even though this is.
Not a great year overall in terms of revenue of course due to the covert pandemic, but our percentage sales of that product are higher than they have ever been and they now have a much better margin.
Not quite to where our control technology is but.
From a perspective of a manufactured good. It's it's helped tremendously. So we're really pleased with the the acquisition in terms of the product. It's given us the the increased spend that we now get on an overall burner management solution from individual customers.
In terms of the mid flow acquisition.
We really have picked up in the northeast in terms of a service perspective, which again, we wanted to increase that footprint in the northeast because we believe.
That the natural gas market will continue.
Continue to improve we believe that.
It will be a strong play in years to come and to have that service footprint as well as the experienced assets that we.
That we were able to bring in with that acquisition. We believe are key to our growth in the future as we forge outside of oil and gas with our combustion technology.
Okay, great. Thank you I'll turn it over.
Thanks, Rob.
The next question is from the line of Jim Mcilree with Bradley Woods. Please proceed with your question.
Hey, Jim How's it going.
Well. Thank you how are you guys.
Well, we're doing well yeah.
Yeah, just a couple of questions.
Regarding the changes that are taking place in the industry.
I I might my assumption is that the there's going to be a lot of consolidation and so there will be fewer customers for you.
And I just wondering if you could comment on how you're positioned relative to combining industry that is.
Or do you have relationships with.
Presumably you are going to be the winner switch, which would be done at the larger cap companies and then second.
Secondly, a.
Can you kind of referred to it in the last answer to the question.
On on your on your exposure to the different basins.
As you look out and prepare for whatever is going to happen how are you relative to.
How are you positioned in basins that are more likely to see activity and you mentioned, the north east with the with exposure to the gas but.
I'm also wondering if you could extend that.
Thought to how you're doing for other basins, and an oil versus gas or where you might need to.
The beef up and let me just start one more in there you talked about new products I'm wondering if that's going to result in an increase in R&D and their short and medium term. Thanks.
Great three questions Oh.
I'll tackle the large cap first in the basins and then of course, Ryan just jump in but.
We are positioned very well for the large caps to take over in fact, that's where we have for the most part focused our efforts over the history is yeah, we work with any producer, but the focus on your Chevron.
Focus on your Devon Energy's Youre marathons Youre your larger companies that are doing the oxys that are doing a lot of the transactions are the pioneers et cetera.
We're positioned very well in specified in with most if not all of the majors.
So your recent acquisitions that occurred synovus of Husky, well, we had both as a specification. Your your acquisition of Chevron of noble in the DJ Basin, Great. We have both of those anyway.
We completely agree consolidation will continue to happen and it's why Profire has to remain diligent in and how much credit we give out or that we extend to customers were very carefully watching their activity their payment history, our credit team mixed with our.
Our operational and sales team is it's a major fold focus for us.
In terms of basins.
The northeast rehab inexpensive footprint of sales and service and it is probably outside of the DJ Basin in Colorado are those two probably remain is our highest market share we're probably.
In the high Eightys, if not 90% of the market. We believe that we capture it when you go further south into the Permian Basin is obviously, a key focal point and will remain a key focal point for liquids in the United States.
And it is an area, where we had admittedly not so much come late to the party, but our presence was was not as big there as we would've liked to do however over the last three years, we have we have done very well in the Permian basin and we we have a strong footprint there, but looking to expand and in fact, a lot of our customer additions.
Throughout this year have been in the Permian Basin, which is a good sign.
We believe North Dakota will probably continue to struggle that that basin has higher lift costs. However, we still have a presence there through ourselves as well as through distribution partners, who sell and service our equipment.
Oklahoma and North, Texas, I think there will be an emergence there as gas becomes more important and not so much more important but more used as we go forward in a potentially a coal free or less cool in our power plants natural gas will have to pick up the slack as well as in a lot of other spaces.
Yes.
You.
Your last question on new products.
We definitely continue to look at what we're going to do with our product line right. Now obviously, we have the 3100, which we still are working on.
Updating features a as we gained validation and customer information or what is required for different markets. Both inside of oil and gas mainly on the more complex appliances as well as outside of oil and gas as we venture into that territory R&D against it.
Expenses, we look to to control it anything that we do going forward will be well need to match market need and desire and we are really looking into our strategic partnerships to help us in our R&D efforts in terms of which way to to steer the ship as we.
Again, we want our combustion products, which are world class as we stated in our release their world class that can be used in a lot of different areas. We believe we've only top just a small portion of it through the upstream and midstream space.
Right anything I Miss there.
I think you covered it very well the only thing I would add is is on the R&D side, where we are certainly committed to continuing to develop new technologies and even adding capabilities to the technologies that we have.
In place right now and as I noted in my review of the quarterly results, we can see some quarters, where R&D does jump up a bit.
And largely that will be related to certifications of any new products or features or things that come out but as far as the.
The overall R&D spend say on an annual basis, we're not looking to increase that we're looking to manage the cost and reprioritize our efforts, where we believe they will have the most value. So we shouldn't see any significant increases in R&D cost, but still allow ourselves the opportunity to invest.
Fantastic. Thanks, Thanks for the answers guys and good luck with everything.
Okay. Thanks, Jim.
Our next question is from the line of Brad Bullock with Pioneer Capital Group. Please proceed with your questions. Thank you.
Hi, Brad Hi, Enrico actually it's kind of a follow up to the last question on or in the <unk>.
Are you in terms of the product development and expectations up getting it to market.
Well on the upstream midstream space, obviously, we've we've executed there and the product is there 2200 that we launched late last year and early this is a more of a more of a commercial much here. In 2020 is is rolling four just as planned.
We would have liked there would have been more demand this year to get more of them out, but it's actually a little bit of a blessing in disguise you get an opportunity.
To test the product a little bit more fully allow customers to brady and slowly into their fleet.
I'm I'm, but I guess your question would probably be more along the lines of where is your combustion technology as it needs to be your controllers for other markets and that's that's a great question we have already.
I'm done.
Done some installations and some asphalt plants and some sand drawing Oh plan some agricultural opportunities Weve been began work in some biogas applications really we're calling it very productive dabbling is we've we've put it in a lot of different industries and now.
We believe we're to a point, where finding the right strategic partners, who already have a presence in those markets larger automation firms that are looking for a technology that that can be their own and then we support them as the manufacturer and expert of the technology instead of trying to grow it.
Organically. So that really is is the opportunity profires looking at right now does or control technology match every industry no. It doesn't but does it match a bunch of them a lot of a large market. We believe it does and that's again some more of the research will be putting in and development over the next coming months.
But we really look forward to 2021 being a year, where we can potentially bring on some some strong strategic partners to help diversify our revenue streams.
Okay. Thank you.
Thanks, Brad.
The next question.
The next question is from the line of severe hotel with Askeladden capital. Please proceed with your question.
Yes, I'm here.
Good morning.
Mirror or are you maybe on mute.
Can you hear me now.
We can hear you now got.
Gotcha I was just saying good job on the cost discipline.
And cheer up it'll get better soon.
So thank you [laughter], yes, that's the first question I didn't understand what you were saying about the emissions reduction E.S.G. stuff are you talking about organic product development are you talking about M&A light I didn't quite understand if you could go over that again.
Yeah really that.
We're looking at partners in that arena, there's a plethora of other technologies out there where that focus exists and we are we feel our best strategy is to start with a strategic partner could it potentially turn into M&A, who knows rights. If the opportunity is right it might it might go that way.
For now we want to work with partners or partner in this area and to use our footprints our customer base to be able to.
Get some early adopters to get this technology a more mainstream it's there's a great opportunity for M.P. isn't as we mentioned in our call. They they have to pivot the cannot continue to to hope that they'll get all their savings from drilling drilling is not going to get cheaper unless you just don't do it and we're.
Not to that point, so they have to get operations in line and they can't do it through a ton of people staring at screens in a ton of people driving out but to look at things. They have to rely on a we believe artificial intelligence and machine learning and so this will be a partner ship strategy for.
Yes at least at this point somewhere, but we look forward to sharing more on that as we get some wins in that area.
Okay understood.
The second question was for Ryan on your gross margin I didn't understand or were there some kind of inventory reserves and they're like are those margins kind of just what you're doing right now or was there something kind of one off and is about a million of EBITDA, our cash flow quarter are reasonable burn rate for the next quarter or two until demand picks up.
[noise] Oh, some good questions there for sure as far as gross margin is concerned.
There's a lot of things that come into play there as part of our our normal structure and.
Some of that or a lot of that is being amplified as the revenues have dropped significantly. So there are certainly some fix portions that come through there and overhead and depreciation that are now as a percentage larger than they would be and in previous periods or periods, where we have higher revenues.
Another factor that does come into play there also is the actual products that are sold during the period and the customers that they go to we have a larger customers that purchase in much higher quantities get a little bit of a discount compared to some other customers who aren't aren't meeting those same.
Types of numbers and in quarters like this where things are down it tends to be those larger customers that are doing more of the buying then or some of the other customers. So that naturally has a little bit of product mix and customer mix impact as well.
Warranty and inventory reserves do come into play there if their movement.
[noise] up or down in those they will either move the gross margin up or down as well, but overall there was nothing highly unusual or abnormal in the standard items. It was just movement that unfortunately, we're all kind of drawing the margin down a little bit more and therefore, we saw that significant.
Extend margin, but nothing significant and when it comes to inventory we didn't write off.
Any large portion of inventory or anything like that.
And then your question on EBITDA.
Obviously, we don't give a quantitative forecast or predictions guidance, but if.
If you were to look at our run rate right now and if things were to hold flat, it's a reasonable number to look at going forward for sure.
Okay, and then it sounded it sounded like you're making some good progress on international you know again I'm curious are you going to start breaking that out like the actual results at some point like what you're what you're actually selling and do you do you have a sense of.
I know a lot depends on the oil price environment and whatnot, but do you have a sense of kind of how that business could progress over the next couple of years.
Hi, Ryan do you want to comment on the breakout part and then I can jump in on the how it can progress.
Yeah, certainly there there are definitely accounting rules and requirements as far as the financial statements are concerned as to what portion needs to be broken out and at what levels typically it's things that become greater than 5% of the total number of so at some point, we certainly hope that.
International becomes a large enough that we are able to break it out on the financial statements and it becomes that meaningful.
So it may be around that threshold as to when it makes the most sense to start to break that out obviously you can get from what I'm speaking that it hasn't quite reached that level at.
At this point, but.
We are making good progress and Cam can comment specifically about where that progress is happening and what it is that we're seeing.
Yes, definitely we we've really as we mentioned we got our P. F 2200 into several markets in Latin America over the so far this year and the adoption of that technology. We believe it's from the beginning that that our international product for natural draft here.
There's even forced draft would have to be something that was.
Less language dependent which the 2200 user experience is probably more international friendly.
We've seen some some great grounds gained in the back to the more day play, which is in Argentina and as you speak the.
The language you know that that means the dead Cal I learned that which is a great thing, but [laughter], we love that place our distributors throughout Latin America are busier than in other areas right now and we have learned that Saudi Aramco, They love our technology. Unfortunately, Saudi Aramco just.
Doesn't have a ton of applications currently for us.
So will we continue down the process, we did a deep dive into our progress throughout the year, our distributors and we're working to hold our distributors more accountable than we had in the past we want to see progress we want to see that the behaviors. They're exhibiting in this new world of zoom meetings, we don't have to be in Chile, and we don't have to be in Peru.
In Bolivia, we can do things by Oh, M.S. teams or zoom or whatever technology and so we look for a 2021 to be a stronger year in the last half of 2020 has shown some nice promise. So we'll continue we are planning to add more distributors in the upcoming years.
And perhaps whats your couple out if they're not performing.
But again as Ryan mentioned, we we we would love to be able to break it out and share it because that would show the progress, but we are happy so far with the progress.
Gotcha. Thanks.
Thanks.
Thank you as a reminder to ask a question you May press Star one.
The next question is from the line of runs on a private Investor. Please proceed with your question.
Hey, Cameron Hey, Ryan.
Hey, Ron.
Hey, So first I wanted to make a recognition that these two down quarters are really really significant revenue hits.
And I think it's I want to recognize.
The Profire and you guys are it's very tough you haven't I'm sure a family like environment with employees and its clear.
Class keeping costs down there is no fun in cutting also your your customer relationships are good and I know a lot of customers are hurting out there as well.
But I did want to compliment you guys on your ability to control cost you have very low operating leverage which is great low financial leverage and you're actually preserving cash which is fantastic in this downturn. So.
I I just want to commend you guys. It's no easy task, but you've done a phenomenal job of preserving the balance sheet.
And it's giving you the ability to yeah, it's giving you the ability to look at a lot of the strategic options that you've talked about which are exciting.
But I had a question related to the core business.
There are companies in the oil.
Field service sector, like computer modeling and natural gas services and some others that.
I have a recurring revenue model, where they [noise] base.
Basically Uh huh.
Continue to experience revenues, even when drilling stops or because of their business model and you know when you have a competitive mode like Microsoft did with their office suite.
Even though as a customer of Microsoft I did I wanted to buy it they didn't give me that option and I had no alternative right because they have this the smoke there have a high market share.
So my question is have you ever thought of track.
Transitioning in conjunction with new technology availability, a newborn or model into a nonrecurring revenue model, where you could.
You know.
Hughes do preventative maintenance update.
Will be responsible for routine maintenance and also monitoring.
The variables that you were talking about and making sure that customers are getting the most out of the burner technology through some kind of a collective intelligence and analytics with the partner potentially.
You have a balance sheet that would enable you to do that.
If you truly had a moat.
Then you could probably restructure your model and I was wondering if you guys ever had thought about that because I see these other companies that have this recurring revenues like the two I mentioned and their revenues don't go down when the drilling stops.
So I was wondering if you had kind of thought about a recurring model for new technology and potentially selling.
Older technology or selling the technology into the international market as a hybrid.
Well, Ron if you could read our our minds of what keeps us up at night, you've hit a couple of them. One is our team members, which you obviously know bye.
What we've had to do from cost control and people going without with less pain and working less hours.
Keeps us up at the probably the one of the next biggest things is how are we going to to pivot our our legacy business as well as future add on business is to be more in that space where a.
We can lessen the drops and the ups and downs of the business. So how we thought about it absolutely are we looking at that with some of the technologies. We mentioned on the call with artificial intelligence and machine learning absolutely are we are we hoping that there is an opportunity to integrate.
Perhaps a future offerings with our BMS and that.
Top of our list of researching and trying to figure out it is.
It would be.
We've looked at it before is there a way to lease the controls for example in the fuel trains and we did some customer investigation with that and some discovery meetings with our big customers and and really it kind of at the time. It wasn't really well received no you bring up well maybe if you have that mode. If you will.
That that share can you just flip the switch and not give them the opportunity potentially yeah, but it is something we will have to continue to investigate and analyze them and see where it goes fourth but we are.
Our strategy our plan is to anything that we look at needs to have that as a consideration anything we build in the future that has to be a consideration.
Ryan or any thoughts you'd like to add there.
No I think you've covered it very well and it's obviously something we've been thinking about for a long time and even you know the newer products that we are.
Brought to market and bringing to market.
We have 2200 and others have additional capabilities that can lead down this path its.
A big transition for oil and gas to move in that direction and in the machine learning and these.
These types of things, but we firmly believe that it's a necessary path that they need to go down and we'll be going down over.
Over the next several years and we certainly want to be a player of as a part.
Part of that and we do believe there's opportunities for recurring revenue as we move in that direction.
So great question. Thanks, Ron.
Thank you.
Next question is from the line of John Bair with ascend wealth Advisors. Please proceed with your question.
Hey, John I know.
I see okay I'm off speaker. Thank you I appreciate you squeezing me in here at the.
And have a pretty long one.
See in your prepared comments ER Cameron I guess it sounds to me is yes.
Perhaps.
Yeah, you're looking it up we're on a.
A bias towards expanding partnerships with different with different entities as opposed to acquisitions and I would imagine right now the acquisition front given.
The.
Dire Straits, if you will of the industry the quality of potential acquisition candidates.
It may not be as as enticing, perhaps I don't know if that's a fair way of putting it.
I would imagine that any acquisition would be geared more to.
Getting you into basins or areas, where you could improve your market share.
So that that's one question and Mike <unk> here on that idea that partnerships are perhaps more on the front burner than than outright acquisitions.
Well, yes, and no. Your your comments there we look at the current business the business that we're strong in upstream midstream downstream transmission burner management the core as it were.
We believe that for the most part besides some there might be some peripheral bolt ons to consider which we wont dismiss completely but you're absolutely right. What's available right now profire, probably doesn't want it I'm definitely not always but you just never know right, where we talk strategic.
Partnerships is more along the lines of where else can profire technology live and that we believe is outside of traditional chosen completions dependent oil and gas industry. We won't we won't abandon it because it is such a great market. However.
However, we look at if you were to look for example, power and infrastructure or mining or as I mentioned soil remediation pharma food and beverage for Profire to organically grow in that space would be a I believe a monumental task that it just the cost would be.
Insurmountable and the knowledge base and the contacts pro.
Profire doesn't have that.
What we do have is the ability to find partners that are in those spaces that we believe can we'll use the comparable of we can dance, but we need someone to take us there and that we believe will help us overall is to to move higher margin products into those those business.
It is less of an operating cost for Profire.
So that that is something we consider did that answer John <unk>, yes, it doesn't actually it addresses sort of a follow up to an.
An add on and that was a.
Are the.
The partnership.
Attempts more to get you into new markets outside of traditional oil and gas and I think he basically said, yes. That's that's that's the.
That's the game plan, so so but that being said how quickly do you think you might see some sort of a monetary benefit from these partnerships in other words, something that you know revenue wise and profitability wise.
How how do you see that playing out.
Is it something that has stake you kind of have to touch there to tap dance a little bit with the partners before.
It would be something that you would come into.
Say projects or something that they are already working on that you can then add your expertise to.
HM.
We believe that market dependent and geographic dependent we I don't think this is something where in fact I know, it's not something where we're just starting it. This is this is something that we can we can enter we already have lots of contacts the double double I don't like to use that word.
But are in oil and gas, but they're also in refining there also an upgrading their also have large sales forces that that chased stocks all over the place that's kind of an industry term outside of oil and gas is chasing stocks. If theres a stock there is a burner if theres a burner theres a burner management system.
And so how quickly can we turn this from a strategy and idea of a goal into two revenue.
We think in some areas, it's going to take it could take a year or more in some areas. We can jump right in and like you said at our technology to existing products and perhaps give some whoever our choice of partner or partners are a strategic advantage with our technology versus what is already being used.
In some of these industries, which is.
In a lot of ways, sometimes old and antiquated technology built out of a garage or with older intellectual capital or sometimes it could be very expensive TLC based expenses to maintain to build create systems, whereas profire has.
More of an off the shelf offering that we believe could fit into a lot of these industries.
Okay very good appreciate your taking my questions.
Right on things are starting to see in a little pick up in the in the rig count and hopefully that will continue thanks.
Thanks, a lot.
Yep. Thank you.
Thank you there are no further questions in the queue at this time I'd like to hand, the call back to management for closing remarks.
Thanks, everyone for joining our call today to discuss our third quarter 2020 results. We want to thank you all for your continued support as always we're available for any discussion or questions. You might have we will be participating in the three part advisors virtual southwest ideas conference later this month and.
We look forward to speaking with many of you at that event. Thank you and have a great day.
Thank you. This concludes today's conference you may now disconnect. Your lines at this time. Thank you for your participation.