Q4 2021 Profire Energy Inc Earnings Call
Good morning, everyone and thank you for participating in today's conference call to discuss profile Energy's fourth quarter and full year 2021 ended December 31st 2021.
I'll now turn the call over to Steven Hooser Investor Relations at three part advisors to get the call started.
Thank you operator.
With me on the call today is co CEO and CFO of profile energy, Ryan, albeit and 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.
Payments made during this call that are not historic are forward looking statements. This call contains forward looking statements, including but not limited to statements regarding the company's expected growth impact of higher oil prices management of the supply chain and anticipated impact of government sanctions expansions in new markets customer.
<unk> of the P. F. 'twenty 200 product line investments in the launch of new products anticipated sales opportunities and planned projects the ability of the company's resources to make beneficial investments in 2022 and beyond the company's exploration of M&A opportunities and the company's future financial performance all such forward looking.
Statements are subject to uncertainties and changes in circumstances.
We're looking statements are not guarantees of future results or performance and involve risks assumptions and uncertainties that could cause actual events or results to differ materially from the events or results described in or anticipated by the forward looking statements factors that could materially affect such forward looking statements include.
Certain economic business public market and regulatory 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 of 1995.
All forward looking statements are made only as of the date of the release and the company assumes no obligation to update forward looking statements.
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 March 23, 2022. Starting later this evening it will be accessible via a link provided in.
<unk> press release as well as the company's website at Www Dot profile energy Dot com.
Following their remarks.
Mr, albeit and Tidball, we will open the call for questions now I'd like to turn the call over to co CEO and CFO of profile energy, Mr. Ryan Oviatt, Brian .
Thank you Steven and welcome to all of you who are joining us on the call today.
I will start the call by providing some updates on our industry and our business followed by a review of the financial results and then I will turn the call over to Kim to discuss the quarter's highlights and outlook and strategic direction.
Our 2021 results reflect the gradual recovery of the economy, you're following the extended global shutdowns in 2020 revs.
Revenue gross profit and EBITDA increased sequentially each quarter during the year in line with oil demand increases in oil price improvements driven largely by the reopening of economies worldwide.
Subsequent to year end oil prices have risen and topped $120 per barrel for the first time since 2008.
This is putting increased pressure on U S and Canadian producers to begin ramping up production.
However, we expect the near term impact to be modest as producers grapple with the challenges of finding the additional skilled labor and available drilling and production equipment necessary to achieve higher production volumes.
Lack of capital spending over the past two years will be a challenge for producers and will likely limit their ability to scale quickly.
Thankfully the Covid case rates have started to decrease dramatically in the U S. In most places around the world.
This has caused the CDC along with many additional state and local governments to rollback mass mandates for indoor environments and a number of companies are beginning to set dates for employees to return to work in the office.
We are part of this trend and are excited that our Canadian employees can once again gathering our facility as a full team like our U S workforce has been able to do for some time now.
The EIA expects global production to meet or slightly exceed demand later this year, but the current geopolitical climate may result in greater volatility in prices and global inventory levels.
This adds to the already challenged environment, resulting from lower production levels over the past two years.
The recent unrest in Ukraine has contributed to the upward pressure on oil prices until yesterday. The Biden administration had not sanctioned Russian oil exports, which represents approximately 8% of U S oil imports.
If these sanctions were to be combined with fewer government restrictions on U S. Oil production. This could have a significant impact on our business in the U S oil industry in general.
With that let me shift gears and turn my remarks to profile <unk> financial results for the fourth quarter and full year 2021.
Yesterday after the market closed we filed our Form 10-K , with the SEC and discussed the quarter and full year's highlights in our press release as always both of those documents are available on the investors section of our web site. The transcript of this call will be posted in the coming days in.
In the fourth quarter, we recognized $8 3 million in revenue, which represents a 19% increase over Q3, and a 47% increase over the prior year quarter.
The sequential and year over year increases are primarily due to the continued economic recovery from the COVID-19 pandemic.
Gross profit increased to $3 4 million as compared to $3 1 million in the third quarter of 2021, and $2 8 million in the year ago quarter.
Gross margin decreased sequentially to 41, 6% of revenues from 44, 9% due primarily to product and customer mix and.
In an effort to help combat the unprecedented inflationary pressures experienced throughout 2021, we implemented a price increase across our product line at the end of 2021.
Total operating expenses for the fourth quarter were approximately $3 7 million compared to $3 4 million in the third quarter and $2 8 million in the fourth quarter of 2020.
The sequential and year over year increases reflect the significant cost inflation impact on our business combined with re staffing efforts in response to the recovery during the year.
Specifically G&A expenses for the fourth quarter increased 8% sequentially and 36% year over year.
R&D expense decreased 7% on a sequential basis, but increased 20% from the prior year quarter.
Depreciation and amortization increased 58% sequentially and 55% as compared to the same quarter a year ago.
Net loss for the fourth quarter was approximately 145000 or breakeven on a per share basis. This.
This compares to net income of 92000 or breakeven on a diluted share basis in the third quarter of 2021, and net income of 56000 or breakeven per diluted share in the fourth quarter of last year.
Cash flow from operations in the fourth quarter was a negative 309000 compared to a positive 142000 in the prior year quarter.
During the quarter, we repurchased approximately 664000 shares of our common stock for approximately $755000.
As of December 31, 2021, we had roughly $1 2 million remaining on our repurchase program.
For the full year 2021, we recognized $26 4 million in revenue.
This compares to $21 5 million in 2020.
The 23% increase is primarily due to the increased customer demand related to the ongoing economic recovery from the pandemic as well as our success and progress in the strategic growth segments of our business.
Gross profit increased to $11 4 million as compared to $9 5 million in the prior year.
Gross margin decreased to 43, 3% of revenues from 44, 4% in the prior year. This year over year decrease in gross margin is primarily due to product and service mix and inflationary pressures on both fixed and variable costs.
Total operating expenses for the year were approximately $13 4 million.
This represents an $810000 increase from 2020.
The increase is primarily related to higher G&A expenses.
Resulting from overall cost inflation, and the re staffing or positions correlated to the recovery of our business.
However, the 6% increase was lower than our revenue growth rate for the year.
R&D expense decreased 14% and depreciation and amortization increased 14% compared to the prior year.
Total other income during the year was 334000 compared to 421000 last year.
The decrease is attributable to fewer fixed asset sales and the associated gains or losses year over year.
Net loss for the year was approximately $1 1 million or <unk> <unk> per share. This compares to a net loss of $2 2 million or <unk> <unk> per share last year.
Cash flow from operations for the full year was 649000, and our cash and other investments totaled $17 5 million compared to $17 6 million at the end of 2020.
We had no borrowings or other debt on the balance sheet at year end.
Capital expenditures for the year were approximately 169000.
Our inventory balance at the end of the year was approximately $7 2 million down from $8 4 million at the end of 2020.
To date, we have been able to adequately meet our level of customer demand. However continued disruption of the supply chain over the next three to six months could make this more challenging we will continue to proactively work with our suppliers to procure the necessary parts and components to deliver our BMS solutions while replenishing.
The inventory used over the past couple of years.
I will now turn the call over to Cam to provide an overview of our business camera.
Thank you Ryan.
We're excited about the financial results for the fourth quarter in the quarter, we were able to achieve the highest top line revenue for a single quarter since Q3 of 2019.
We are encouraged by the positive trends that are supporting improvements in both our core legacy business as well as our diversification efforts into new industries.
Looking at our core legacy business the.
The combined onshore rig count for the U S and Canada averaged 704 in the quarter.
Representing an 11% increase from the previous quarter as well as an 80% increase from the beginning of the fiscal year.
The average W. T I price per barrel of oil in Q4 was $77.
Representing a 10% increase from the previous quarter.
Producers continue to draw down on previously drilled but uncompleted wells as the DUC count decreased to 4650 at the end of 2020 , one representing a 48% drop from its peak in June of 2020.
We have and continue to see positive signs from our customers such as increased drilling activity and plans for additional equipment upgrades.
We are encouraged by recent industry consolidation activity, which has new buyers looking to modernize the assets they have acquired.
These signs will likely create additional opportunities with both new and existing customers.
Although profile has prepared for these expected increases were also dealing with challenging supply chain issues and human capital constraints that are impacting most industries.
Our sales team continues to find new and expanded opportunities for our P. F 3100 platform.
We continued to gain momentum and selling to customers, who have larger more complex burner applications.
We expect that our solutions project execution, including engineering and design and price point and product performance set us apart from traditional competition that larger midstream plant operations and facilities.
This has led to increased quoting of proposal activity that we believe will support our 2022 revenue goals and targets. However, we may see some revenue volatility quarter over quarter as we navigate the industry's supply chain challenges.
The P. F. 'twenty 200 continues to roll out successfully.
Approximately half of our customer base has begun adopting the P. F 'twenty 200 platform.
Some early adopters have already begun to suspect the U F. 'twenty 200, as Theyre based platform.
We expect the majority of our customers to shift over their new equipment purchases to the P. F. 'twenty 200 between now and the end of 2023.
We remain focused on finding opportunities to expand our solutions offerings to our existing customers.
Emissions monitoring and quantification continues to dominate the press and in turn the minds of our customers.
We feel our existing customer relationships present, a strong opportunity for profile to bring these types of solutions to our customers through potential partnerships acquisitions or other investments.
We are investing in R&D to bring additional solutions that we believe will help our customers in their efforts to track measure and quantify emission and support their efforts to demonstrate that they are producing responsibly sourced gas.
In the fourth quarter of 2021.
We received repeat orders were completed new combustion projects in biogas power generation landfill water and wastewater chemical construction and infrastructure and food and beverage.
Projects completed in the fiscal year in the mining renewable and biogas industries, we're focused specifically on efficiency improvements and the destruction of fugitive emissions, including methane and other VLCC.
We continue to strengthen our pipeline for non oil and gas project opportunities and we expect to see meaningful growth in this area in 2022 and beyond.
We continue to develop relationships with existing and potential strategic partners end users and Oems from the industry as mentioned above and the quantity of opportunities continues to trend upward.
In the quarter, we received purchase orders for products and services to support a new dryer appliance in a food and beverage processing plant of a leading national supplement manufacturer.
We expect there will be opportunities to upgrade the existing heated appliances at the same facility in the future.
We were also awarded a significant upgrade project at an LNG fractionation facility, which we expect will be executed in the second quarter of this year.
In response to the ongoing positive signs and use cases for our combustion products and expertise in alternative industries. We have added an additional resource through our sales team.
We now have two full time sales representatives focused exclusively on these initiatives outside of oil and gas.
We have also restructured our compensation strategy for key team members, including business leaders and sales team members to promote business development efforts focused on this strategic initiative.
In 2021, we were successful in our push for business growth in midstream oil and gas as we completed several significant projects at larger midstream operation.
Our successes are enabling us to pursue repeat business and to credibly approach other midstream plants with large multi burner applications with a proven track record.
We continue to invest time and energy and investigation of potential acquisitions, which are complementary to our vision and growth initiatives. As always this is a challenging and time consuming process profile will continue to employ proper due diligence to balance risk versus reward in assessing these opportunities.
As we reflect on the previous year, we look forward with optimism in 2022 and beyond looking at the future of our business. We feel that we're in a better position to capitalize on the organic growth from our core business and to execute on our growth strategy into new industries.
We have expanded and have successfully proven the value of a larger suite of burner management solutions, including controllers high efficiency burners and service exposure.
Our customer base continues to expand and our sales and service team continues to assist our customers with critical safety and efficiency solutions.
Our sales pipelines and our legacy business midstream plant operations, and non oil and gas industry continue to strengthen.
We have added to our sales team as our market has expanded supporting our strategy to enter new industries. We continue to work on development of existing and new strategic sales and distribution partnerships, specifically with those who have high exposure to applications found in non oil and gas industries.
The ability of oil and gas prices at or above current EIA forecasts should enable our extensive customer base to invest further in technology upgrades as well as expand drilling and completion plans.
We have continued to manage our cash position effectively through our share repurchase program, we have repurchased 664000 shares or one 4% of total outstanding shares prior to starting the program.
Before we turn to questions.
And I would like to once again, thank our employees for their continued dedication and commitment to the ongoing success of profile, our customers and our shareholders. Operator would you. Please provide the appropriate instructions. So we can get the Q&A started.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
The interest of time, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of Rob Brown with Lake Street Capital markets. Please proceed with your question.
Good morning, Rob Hey, good morning, guys.
Good morning, guys good morning.
Just first on kind of the the environment. Obviously, a lot has changed over the last few weeks what what are you seeing in terms of the customer demand environment, a more boring due this year and and how do you. How do you sort of you know historically this higher oil prices are sort of flow through to you.
Typing.
I can definitely tackle that one here first Rob. Thanks for the question. If you look at obviously, it's not really an elephant in the room, but the developments in Russia, and Ukraine, and we've got a lot of questions over the last few days months weeks about what will this mean.
<unk>.
Really they've obviously ignited pardon the pun, but our core market, which is really already a coiled spring.
If you look at what our customers we knew as early as in the middle of Q4.
We expected we forecasted that we would see an increase in production. It just had to happen with the decrease of ducks.
The fact that there's 50% less from its peak that that's a huge issue for U S shale when it comes down to it because not all of those ducks are our completion worthy. So we already knew there had to be some increase in production, we're seeing the COVID-19 numbers go down.
So we expected this and increase to occur in 2022, obviously you saw a nice uptick in 2021 in the fourth quarter in the back half of the year as we predicted.
But with the whole.
Russia, Ukraine thing.
If you are alluding to that and maybe you're not.
That's going to take time, I'm really for the U S and even North America gas from oil producers to catch up is a it's really a six month thing before they could even add those incremental barrels that will there'll be a deficit from from Russia being out of it so.
We still think that things are positive for industry, the oil prices being up doesn't hurt that's for sure. It definitely helps us and it will flow through to us eventually.
But as Brian mentioned in his comments there is a lag on that for sure right. It won't add anything to that.
Yeah, I'll, just comment a little bit on oil prices in your comment historically.
Look back prior to three or four years ago.
Higher oil prices pretty quickly translated into increased drilling programs.
In the U S and Canada, we're in a completely different environment, now and lots of different pressures regulatory pressures and even global macro.
Pressures as well to where we're not likely to see that happening, but even even back then when that happened it would be a quick ramp up on on rig counter on drilling, but then it was a three to six month lag for us when they actually needed the production equipment to go onto those new wells, so that that site.
<unk> is still accurate and it's still apply maybe shortened somewhat because of new technology, but.
In the current environment.
As you can see the e&ps here in the U S are holding back and they're not making the moves because of the government pressure. The additional regulations and restrictions that have been placed on the industry as I mentioned in my previous comments I think we really have to cease a softening of.
Some of those pressures from the White house from the administration before we're going to start to see a significant ramp up and that might mean some pain.
Four people at the pump and in other ways for a little bit longer until till we can really see that change happen.
Okay, great. Thank you for that color.
And then also on that and I think you're specifically talking about the non oil and gas projects, but the pipeline of projects ramping up you alluded to could you kind of give us a sense of how many projects are in the pipeline and maybe the size of the revenue opportunity there over the next couple of years.
That's always fun to forecast what we can what we can shares yeah. We've definitely seen some success. We've now got the two sales team members rocking on it but we've also empowered.
Our team members who service.
The upstream midstream and downstream transmission business to look for those opportunities and we have a project team in house that supports these as well as those larger projects that go in into the downstream side of midstream, but as we look at what this looks like as we mentioned in the comments.
Just earlier here, we saw meaningful growth.
From $21 million to $26 million and.
There was.
Not a substantial but a meaningful percentage of that increase was due to the efforts outside of oil and gas. So what does that pipeline look like what are the number of projects in the pipeline is larger than it's ever been has been we had a good year last year overall in terms of revenue in that space, We don't see it in the next two.
Years being 50% of our revenue.
But we do think that it could eventually be in the next couple of years to a point, where there would be more reason to bring on more sales team members will continue to add and look for strategic partners potentially acquisitions that are complementary to those efforts of expanding keep.
Keeping true to our core business of combustion and technology solutions related to that so.
So no real numbers to give you there yet rob but.
We hope that in the future, we're able to more fully substantiated with numbers.
And I'll just add to that it's not only the outside of oil and gas.
New industries that Cam is talking about there, but we did see a meaningful increase in our growth segments within oil and gas so that bottom half of midstream.
And refining petrochemical, we're seeing a lot of progress in those areas as well and.
Those are some of those projects, where we've been able to now go back with a track record of saying look we've done. This it's very similar to what you've got and we're getting more quoting and winning more projects in those areas as well within oil and gas, but also that outside of oil and gas diversification.
Great. Thank you I'll turn it over.
Thanks, Rob.
Thank you.
Our next question comes from the line of Jim Mitchell with Dawson James. Please proceed with your question.
Hello, Jim Yeah. Thank you good morning.
And you talked about or maybe it was can you you talked about a price increase.
At the beginning of the year could you quantify that or put a range around how big the price increase was.
Yeah, So I mentioned, it but I'll, let cam talk about this.
The size and its overall our approach to it and how.
How its functioning for us.
Yeah, it's as we looked at the price increase we knew we needed to do it and we implemented at a late Q4, when we gave our customers a little bit of time as they prepare their budgets for.
2022, and we obviously saw somewhat of an influx small influx of orders coming in because people wanting to get ahead of the price.
Price increase to a degree which we monitored we didn't lay off anybody to play any dirty tricks, but for the most part our customers accepted at the range of approximately 10%.
Obviously on some of the proprietary products that profile has we're able to go a little higher than some of the resale products, while we're not able to go as high we more wait for what our our vendors raise their prices will raise our prices and in accordance with them, but we also had to consider just obviously our increases are to the bottom line.
Sofia.
Moving these prices up it was well overdue it was the right time.
But we had to be very conscious of the fact that we still.
We still are somewhat very competitive market when it comes to upstream and midstream burner management, yes, we're the dominant player we've always been the more expensive product because we we provide a better solution than our competitors, but we couldn't go to a point of of pushing customers.
To looking at alternatives because as much as the barrel is high you know overnight in the last few weeks it wasn't that high in December and it's not likely to sustain at this though it's going to go all over the place it's very volatile, but we feel like we put in and increase that.
We'll support pro fires ability to get back into the black into to be a breakeven and profitable company, which is the goal.
But we also have to wait and see how this all plays out we've heard some customer vendors are increasing by five to 15 to 20, we thought that about that average of 10% was the right mix for us.
And we're going to continue to monitor that in the coming year at least if not beyond as far as the.
The inflationary impacts on our business on our costs and labor and everything and if we need to make additional adjustments. In 2022, then you will do that and maybe it's multiple times.
Not necessarily the <unk> scenario, we want because it means our costs are rising as well, but it's certainly something that we will continue to pay close attention to.
Alright, thanks for that the gross margin decline in Q4 relative to Q3, it seems like it's.
It seems like its bigger than than a mix issue is there.
Anything else going on or was there something special about the <unk>.
The orders of the mix that accounted for the.
Relatively large quarter to quarter decline in gross margin.
Yeah. Unfortunately, it was a bit larger than we've typically seen but it is a combination of those factors.
Obviously some inflation.
It was coming into play there.
As Ken mentioned and as we just discussed the sales price increase didn't really happen until the end of the quarter. So that didn't help benefit or offset those inflationary pressures, but we did see a tremendous ramp up in sales at the end of the quarter as well.
And it turned out that a lot of those sales were from customers larger customers.
Oems and others in that similar scenario, where they do garner a little bit of a discount on our typical sales price. So that's where the customer mix and even product mix came in.
The contribution from service is much lower than service revenue.
Coming into play as well being strong during that period. So it's really a combination of those factors, but we did see a significant increase in customer orders from the larger customer base, where they do have a little bit of a higher discount than.
Some of the smaller customers can anything else you want to add on that sales customer mix.
No you captured it well definitely the larger Oems and resellers that are working with.
The bigger producers.
Our mix of going direct versus through that channel in the quarter was definitely different than historical.
You captured it well.
Great.
Ryan you referred a couple of times to regulatory actions that could help.
Increased production can you be a little bit more specific on what you're referring to.
Okay.
If you if we look back to what the Biden administration did in their first two weeks in mountain in their office. So you obviously cut the.
Construction on the Keystone pipeline.
Pink renewing that reopening that would provide additional alternatives to oil supply here in the U S, bringing in oil from Canada and Alaska.
So that would be one key thing, but then also the restrictions that they have put on new leases, obviously theres still lots of lease.
And drilled lease land out there available that producers have but in an environment like this where the administration continues to speak towards longer term goals of significant reductions in fossil fuel production and use in the U S.
I think the E&P.
Executives and leadership teams owners are struggling to see why they would want to make significant expensive investments in drilling programs and infrastructure and things that are going to cost them a ton of money, but in the long term.
Active at least with this administration is pushing for are not likely to have that long term payoff for that long term payback. So it's the restrictions they have actually put in place I know there are restrictions on new LNG facilities in the U S. As well that are being held up so there are lots of different areas.
We're this is impacting the industry, but it's also that overall tone and message that's telling E&P companies to hold back on very expensive massive improvements until they can see a time, where those returns are going to be more profitable for them in the long term.
My personal view of course, but I think theres a lot of evidence out there that supports that.
Alright, that's great. Thanks, a lot guys and we'll speak soon.
Thanks, Jim excellent Thanks, Jim.
Thank you. Our next question comes from the line of John White with Roth Capital Partners. Please proceed with your question.
Good morning, guys.
Yeah.
Hey, John .
Yeah.
Nice results are nice to see the Uh huh.
The revenue improvement.
Back to the pricing.
Was that pretty much across the board it sounds like it was.
Yeah for the most part we there were some corrections on the we went through a massive pricing project actually in.
For a company our size to do that you know what a lift by the team to go through it from one from analysis to to implementation with currency differences, both in vendors and in customers' discount levels. It's it's quite an undertaking it we wish it was just a you've pushed a button in our ERP and it did it but it doesn't.
So it was quite a lift.
But yeah on average that 10% you can say, it's pretty much across the board almost every product has moved.
On average and again, some will do better on and some will will.
We will do as good and some will do a little bit less but for the most part we really targeted obviously kind of that 80% to 90% of the products that make up our revenue that was the target focus of the project.
Okay, Thanks and you.
You mentioned business benefiting from exploration and production mergers and consolidation can you give us some examples or or talk more about that.
For sure obviously there was some.
I think it was cabot in Cimarex.
It's not like we were we look at these and go Wow that end user wasn't using as the other one who bottom is and then we get it although we benefited from that in the past, but what we like to see is obviously 2021 reports have.
Merger and acquisition activity was.
As high as it's been for quite a while I can't remember the quantity quantify qualification of the dollars, but it was huge.
Compared to the previous two years, what we see from that is what we like about it is there are still companies. Obviously theres there are sellers and there's buyers that would be a worrisome. If there was a ton of sellers and no one's buying but we're seeing that consolidation, which we believe means more push towards automation solutions, which we believe.
Pushes more towards autonomous.
Production, which led to one of our existing product suite.
Lends to safety.
You get these bigger e&ps they have been.
Bigger and better safety programs. There are also more conscious of of course, ESG initiatives, especially around the emission side of things.
And so we just see that as a as a good opportunity for profile. It does it does create work for the sales and administration teams of pro fire and service teams as we have to.
Cut things over we got to learn new billing systems, we gotta make new contacts we got to see who shakes out and all the shuffle.
But overall, we see it as a positive thing because these companies that are doing this they're not looking to buy assets to just let them die.
Theyre looking to buy strong assets to bring them into the fleet to connect them end to.
And to to gain production from them there'd be no. Other reason for it in our opinion.
So that's it's a very positive thing we think for profile.
Well that all makes sense and I appreciate the extra detail I'll pass it on.
Thanks, John .
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of John Bair with ascend wealth Advisors. Please proceed with your question.
Thank you good morning.
Kind of wanted to cycle back a little bit to the to the margin.
Aspect and just saying, okay. So you've had a number of your larger customers you've got some bump in order flow in the fourth quarter when that was announced so the question is.
Do you anticipate the Mart your your overall margin profile will improve as we go through this year with those price increases.
And I guess specifically how.
Do you feel you can improve those margins so that you become more profitable.
The expanding base.
Yes, good questions John .
Absolutely, we believe that the cells price bump will help with that.
Very key key reason as to why we're doing it.
How much is it going to benefit.
Can't necessarily quantify that just yet, but if we're bringing up prices on average 10% hopefully it.
Having that amount of impact to offset costs certainly for us in that regard. So we do absolutely expect that that's going to help and as I mentioned before we will continue to monitor our overall cost inflation side as well to make sure that.
It's not continuing to outpace the sales.
Adjustments, we have made and if we need to we will continue to make others in order to try to keep that margin improvement happening.
And then as we look at the pipeline of projects that we talked about earlier as well.
A lot of those projects come with improved margins themselves just because of the nature of the projects there they tend to be a lot bigger theirs.
A lot more work involved on the engineering design implementation actually installation all of that that goes along with those so we certainly are maintaining good solid margins on these bigger projects and as we are expanding into other industries. So far we're seeing that the margins are.
Our holding in those areas, but.
As we've made adjustments over the last two years to our cost structure.
We certainly downsized or right size the business to to get through Covid and now we're coming back out of Covid.
But we didn't completely cut everything to where we could still have those same margins and net margins.
At $20 million in revenue or at $25 million in revenue. We still believe this is come.
Coming out of the bottom and that we're getting back up and that the future for profile is in the $25 million to $30 million annual revenue business, but is much bigger than that so.
We're still building that structure and maintaining the structure that we believe we need to capitalize on these significant increases that could be coming here in the near future and therefore, we've got the structure, we believe that that will help support that.
As we go through that growth and we ramp back up we certainly expect that margins are going to benefit from <unk>.
Higher revenue and lower fixed not lower fixed costs, but not having to grow fixed costs as quickly as we do grow revenue.
Okay.
And then hopefully you get more of the newer projects with better margins in them and that should.
Provide a boost there.
Is that a fair way of looking at it.
Yeah, absolutely Cam any any other thoughts on your end or comments as far as those projects go in the pipeline.
And their impact on margin.
No you covered it well and as it becomes a bigger part of our business. These other projects so downstream side of midstream.
As we've talked about and then outside of oil and gas just diversification initiatives. If we can maintain or on some of them get higher there will be some where it would be up and down but on average it should be able to maintain more around those historical margins.
Okay, and then outside of the price increase price increases and so forth. How are you addressing any raw material costs or component cost pressures that you're experiencing right now.
Oh, that's why we have the right.
Sorry go ahead, okay. Yeah, I was just going to say I'll give it to Ryan, but that's why we moved our call to so early in the morning, because we don't sleep anymore. That's all we do is work.
No right now it used to be.
[laughter] as bad as maybe if you weren't doing a deal out east that's all [laughter].
Yeah Yeah.
Where we're doing the best that we can we've got a great team that's monitoring all of our components and materials Thats looking at alternatives and other options when we're seeing <unk>.
Significant increases.
And Ken joked, but within for Kevin I and even for that team. It is long hours and it's it's a significant effort right now to try and maintain the supply and get the stuff that we have already ordered in a timely fashion, but then also try to keep costs down as much as we can and.
I said look for other alternative sources or auctions.
Without destroying our disrupting the quality that we maintain for our products and our services.
It's a significant effort and we're going to continue to put that in.
Is building inventory part of that process.
Certain things that you can get.
Yes.
Yes.
<unk>, where we historically have maintained a high level of inventory that's come down over the last couple of years, but we are focused on on rebuilding that and even more.
To be bringing on more inventory as quickly as we can to meet what we see is significant demand coming.
This year in and at least into the following year.
Okay great.
Very good some of the other questions I had have been addressed earlier I appreciate it.
Good luck going forward encouraging.
Thanks, Sean.
Thank you. Our next question comes from the line of ARIA Cole with Cole capital. Please proceed with your question.
Good morning, gentlemen, and thank you for taking my question and.
First question just is about inventory.
We ended the quarter here with the December quarter was $7 $2 million of inventory can you give us an upside.
For how long it is taking for you too.
Cure all the various parts you need to build up inventory and are there any specific parts, where there's kind of a real shortage, where there's maybe a six month lag time or something and no specific parts could make.
It makes it difficult to produce.
Produce a finished goods.
Yeah.
Yes, certainly we we have a wide mix of inventory and components.
Lot of those components going into our systems to build a finished complete BMS system. We've got all the peripheral parts that then build a complete BMS solutions. So the flame of rosters the burners.
All of these different things we've kept in inventory.
And from a systems perspective, it's an area, where we're probably seeing the most challenged right now and it's not every component within the system, but its often ones or twos.
In components that.
Have grown insignificant lead times, so we're seeing a lot of components in the six month to 12 month lead time.
And moving in that direction. So we've been working very hard to try and get orders in and and deal and manage with those lead times, but can any more specific comments on.
The components or where our inventory process there.
Yes, when you look at pro fire has historically held.
Substantial inventories and it's been a strategy of ours and we're going to continue to work towards its one of the value propositions to our customers that we have inventory on hand.
But as we look at some.
Some of these components are as you mentioned are you like six months some of even to a point some vendors have.
<unk> come out and said, we're canceling order, we're not canceling orders, we're canceling delivery dates because we don't know we don't have anything to give you their tired of picking up the phone from our procurement team is what it really is but.
What were we were pleased to see I'm not that but the fact that we were able to pivot in our strategy over the years to have wherever possible multiple vendors.
To supply products, so that we can shift and pivot quickly.
We've done some some great things to avoid some really complicated situations to a degree and we've talked about it.
We're almost to a degree lucky that U S shale cannot respond as quick as they would like to or potentially would want to especially if regulatory pressures would allow them.
To expand production to fill this gap of what it would it be like 700000 barrels a day.
Sure.
There'd be nobody could keep up.
But we've.
We've seen.
These issues from vendors, but our team has done a great job in the past to prepare for and to just pivot quickly. So as Ryan mentioned that single components, it's not massive component less for each part, but you look at our bill of materials for our systems. For example, it's a very.
Long and complicated list of parts coming from many different places, which is part of our strategic advantage, but the team has done a great job to pivot as quick as possible to find new suppliers, new replacement parts certification updates et cetera.
Yeah, Let me just ask the question again, I mean, there are certain industries like much of the automobile industry, where there are specific semiconductor. So that are just not available and so cars can't be produced but I'm trying to understand.
To what degree.
How challenging is it for you to get kind of get to kind of get the components you need because you know in some industries. Yes, there was a shortage, but if you pay 20% more the components you need will be available and so what I'm trying understand is in the spectrum I mean.
If your orders went up substantially would you be.
One of them.
What I'm, saying is your inventory, let's say today with depleted.
Would you be able to get kind of all the components you need even by paying higher prices or are there certain parts were just not available and you need to wait six months for them.
Yeah. This is interesting because I was talking to one of our team members and drove by one of the larger dealerships here near the the shop here in Alberta, Canada.
Seven Ford pickups on the lot seven.
There is nothing that they're in a place where they cannot get anything.
We would have a mix of that Luckily we do.
We planned ahead for example, if our systems we've had some of the core key components that are long lead times and that we saw future end of life on for example, our P. F. 'twenty 100 platform, where we have ample stock where we but we would have a mix of that I wouldn't be able to pinpoint that it was all or nothing for any of them.
And some of them.
They're just longer lead times, but some of them you can't pay more they're just not there.
For example, there are solid noyd manufacturers our valves.
If they're not there they're not there.
But for the most part we're ahead of these things, but it is still a shuffling struggled with her to make sure we have the right things for the right orders at the right time.
So I don't know if that answers it for you perfectly there isn't a perfect answer we've got a mix of both.
Okay and then just.
More clearly.
The inflation that you've had in your car.
Cost of goods, what's your.
Weighted average increase in your cost of goods that's taken place.
This resulted in the decline here on gross margin.
Gordon.
That's not really a number that I can quantify or provide.
We're seeing it all in in labor.
We're seeing it in the cost of our contract manufacturers.
As we're talking about all of these different components each of the components are having increases.
They are coming through to us and then on our side the cost of labor too.
Complete the solutions do the assemblies in our facilities.
Those things have been going up fairly significantly I think labor increases overall are probably 10% to 12% increase range across the business over the last 12 months to 18 months, so as far as giving you a specific increase I can't do it but we.
We're seeing those inflationary pressures in every aspect of the business from our utilities to labor to raw materials components, just like every other business is.
Got it okay listen best of luck and being able to.
Uh huh.
Provide the goods your customers need it sounds like Youre very well positioned because if you look at your inventory or maybe it's the equivalent of about six months of sales at the current run rate. So.
It's not as if youre down.
To your lost to BMS systems by Miami stretch.
Yes, certainly and again appreciate your participation today area.
You're very welcome.
Thank you. Our next question comes from the line of James Jang with your Investor. Please proceed with your question.
Hello, Good morning.
Kim.
So yes.
It was an interesting quarter.
And I just have a couple of quick questions. One is you mentioned that.
You had an influx of orders we ended the quarter. So are we.
We to assume that the those orders haven't been booked and those will flow through to the first quarter in terms of the top line.
No actually we're saying those those were booked in the quarter and that's what helps drive our revenue up to $8 3 million for the quarter and that significant increase over the prior quarter at six 9%. So that's what we're saying is we had that influx and they came in but also in our comments about <unk>.
Pipeline that that's more of the forward looking that the pipeline is building and for 2022, we're seeing all of those positive signs.
Okay great.
And in terms of expansion into other sectors.
Yeah.
Have you been I don't know if you can speak about this but have you had inquiries from I guess smaller power plants.
What's being discussed now in the market is.
Setting up small power plants at the source at the wells and then.
Bringing on data centers and crypto miners there.
Many projects they seem to be invoked have you had any inquiries in that sector.
We've been involved.
There's one producer in particular who's who's been very active at that and yeah. Our systems are being used there, but I wouldn't quantify the anything material. So far that we've heard from you know.
The expansion in that efforts from small power Gen set.
Power sites on the pad no not yet.
Gotcha Okay.
With the price increases do you do you expect any further price increases this year.
We look at it as Ryan said, we're going to continue to monitor it.
If we get an increase from from vendors, we're going to pass that increase on we have to.
Yes.
Hope to be able to keep our like our core product profiles product.
Stable for Intel probably look at it again, well, we'll be looking at it throughout the year, but.
Into that Q3 Q4, we don't want to be one of these customers every three or provider.
Providers that does every every three months, however that being said we've had to look at our truck rates and we'll have to look at whether it be surcharges or things like that you look at to fill up a diesel right now.
Depending where you are four to $6 a gallon for diesel.
Definitely no service.
Provider.
And for that last year. So we're already looking at things like that so those would be more on the fly but product mix if its not ours and we get an increase will have to probably consider an increase if we if it's ours. We we hope to be able to go and just do a standard increase at the end of the year.
Okay.
Last question is on the acquisitions you made back in 2019 O.
Can you give us an update on how that has been working out.
Yeah. The we mentioned in her comments just having it having the ability to have a high performance burner or sales. That's really why we bought the midstream company wants to get their burner.
Turner technology airplane technology, it's it's definitely been a huge value for our customers, where we're specced in I couldn't.
Even give you a number but that is the primary burner, we sell we sell more burners than we've ever sold before so that acquisition is working.
Again is it.
$10 million no its not but for what we paid for it it basically an inventory purchase we love the product we loved the ability to bring in to our customers of the mid flow acquisition has been fantastic talent pool. The service expansion in the northeast the support to our business development team and product development team.
The relationship that was brought with UCI, meaning that Emerson impact partner in the northeast again, they're in or they are in our top 20 for last year for customers plus they are starting to expand outside of oil and gas as we had hoped and were seeing some opportunities to come in the door. So very happy with those they are fully integrated.
Great.
It had been for a while.
And we were.
We're looking for the next one that makes sense for sure.
Okay.
One last one here I think it was Ryan that mentioned is that.
The Russia.
Russia.
<unk> been in the U S ramping up production it'll still take about six months for the U S to kind of ramp up if they if they so choose to so.
If that is the case when do you expect to see more ordering activity come in would that be.
In the second quarter or could that bleed into the second half of the year.
And I think it's it's certainly more likely for the second half of the year as far as significant changes in orders because as we mentioned the there's a whole process the drillers.
Drillers, the the rigs have to become available to be able to ramp that up so certainly costs and procurement of sand and fracking supplies and drilling and all of that's got to happen.
And then at the same time they'll start to order the heaters and the treaters. The avian re boilers all of those production pieces of equipment that need to be ordered and we're a small piece of that.
So, bringing those wells online as several months down the road and then when they go online that's when we come into play or our products come into play so.
The longer term process for for significant changes is appointing more towards the second half of the year. However, we are starting to see some increases now as well because of <unk>.
Continue bringing down the DUC count and other activity that's already in place and can you kind of like you wanted to comment as well.
You covered it well I guess, there's two things here again, I think I mentioned it earlier the already predicted increase in the activity for 2022 based on Covid based on the DUC count down that has started for sure but for the most part we still think that.
Again the.
Securing rigs the hiring the frac crews locating equipment drilling completing wells permitting you know that whole processing, assuming permanently was in place that was all.
Was that even ready for this year's spend probably not for US we feel we were ready for the increase.
Now, our Russia, Ukraine scenario increase nobody is ready for that nobody can keep up to that so I.
I think as Ryan mentioned, yeah, even just the back half of this year to support what they were planning to do from almost the beginning of 2022.
Can't even bring in Ukraine, and Russia into this that's just going to make prices as volatile as they are right now.
So it is a tough scenario for e&ps, even if they want to win.
As much as <unk> getting criticism for going to Venezuela and.
And maybe not looking to the neighbors up north or going to Iran, which I don't agree with that but I don't know that he has a choice because U S shale cannot pick up as quick to fill the demand.
That's.
Okay understood alright, well, thank you for that.
I'll pass it onto somebody else now thanks.
Thanks James.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Avi yet for any final comments.
Thanks, everyone for joining us on our call today to discuss our fourth quarter and full year 2000, 22021 results, we'd like to thank all of you for your continued support as always we're available for any discussions or questions. You may have also we will be participating in the Roth Capital Partners Conference next week and look forward to <unk>.
Meeting with many of you there.
And have a great day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.