Q1 2022 Profire Energy Inc Earnings Call
[music].
Good afternoon, everyone and thank you for participating in today's conference call to discuss profile Energy's first quarter 2022 ended March 31st 2022.
I will now turn the call over to John Bosler Investor Relations advisor for the company.
Thank you operator.
With me on the call. This morning is co CEO and CFO for fire LNG right, albeit it co CEO Cameron tidball.
Yesterday after the market closed coal fired filed its Form 10-Q with the SEC.
To discuss the quarter's highlights in a press release as always supposed to these documents are available on the investors section of the company's website.
It's Chris rest of this call will be posted in the coming days.
Before we begin today's call I would like to take a moment to read the Companys Safe Harbor statement.
It was 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 impact of increased oil prices supply chain challenges.
The new forecast is diversification.
Alicia the strategic projects.
As expected growth.
Investment in R&D and new products.
Testing and sale of new products and.
The company's exploration of M&A opportunities and the company's future financial performance.
All such forward looking statements are subject to uncertainty and changes in circumstances.
<unk> 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 <unk> thoughts.
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.
Like to remind everyone that this call is being recorded it will be available for replay through May 18, 2022, starting later this evening it.
It will be accessible via the link provided in yesterday's press release as well as the company's website.
So fire energy Dot com.
Following the remarks by Mr. <unk> Thibault, we will open the call to your questions I would like to turn the call over to co CEO and CFO of profile, our energy Mr. Wright of yet right.
Thank you John and welcome to all of you who are joining us on the call today I will start the call by providing some updates on the industry and our business followed by a review of the financials and then I will turn the call over to Kam to discuss some exciting project wins overall company outlook R&D progress and strategic direction.
Our first quarter results reflect the combined progress of the global economy's recovery from the pandemic and the systematic execution of our business strategy.
Revenue increased by double digits sequentially for the fourth consecutive quarter and gross profit margin improved to its best level. Since the end of 2020, we posted our first quarterly post pandemic net profit and achieved over $1 million in EBITDA.
We made this progress and achieve these great results in the face of significant cost headwinds and supply chain challenges across every facet of our business.
Oil demand to increase significantly in the quarter due to the removal of COVID-19 related restrictions across the U S and other countries and due to the war in Ukraine.
Combination of which sent oil and natural gas prices to 14 year highs.
These higher prices have led to an increase in the oil industry activity with the weekly average rig count in the quarter, increasing 56% from the prior year quarter.
Although this does not immediately impact our result, it does create future demand for our products.
Producers in the U S and Canada continue to face significant challenges in ramping up production, including a lack of skilled labor and inability to secure replacement parts of our equipment on drill rigs a lack of completion equipment.
And the infrastructure.
And underinvestment in Capex spend for many years and political and social pressure to reduce fossil fuel production. These challenges are limiting e&ps abilities to increase production and thereby replace the oil previously imported from Russia.
Recently, the U S administration announced it would resume onshore oil and gas leases on federal land. However, at the same time the amount of acreage offered was reduced substantially and the required royalty payment increased by 50%.
Unfortunately, these moves are not helping to incentivize e&ps to increase production, which would help to lower gas prices at the pump and alleviate inflationary pressures in North America.
With that let me turn my remarks to provide some additional detail on on profile <unk> financial results for the first quarter of 2022.
In the first quarter of 2022, we recognized $9 5 million in revenue, which represents a 15% increase over Q4, 2021, and an 87% increase over the prior year quarter, the sequential and year over year increases where the combined result of the increased activity related to the <unk>.
Going economic recovery higher oil prices and consistent execution of the strategic pillars of our business.
Gross profit increased to $4 6 million as compared to $3 4 million in the fourth quarter of 2021, and $2 2 million in the year ago quarter gross margin increased sequentially to 47, 9% of revenues from 41, 6%, primarily due to product and customer mix.
The price increase implemented across our product line at the end of 2021 and the fixed cost coverage provided by higher revenues.
Total operating expenses for the first quarter were approximately $3 9 million compared to $3 7 million in the fourth quarter of last year and $3 million in the first quarter of 2021.
Sequential and year over year increases reflect the inflationary cost pressures on our business combined with re staffing efforts in response to the industry recovery over these periods, specifically G&A expenses for the quarter increased 33% year over year R&D expense increased 20% from the prior year quarter.
Depreciation and amortization was unchanged compared to the same quarter a year ago.
Net income for the first quarter was approximately 627000 or <unk> <unk> per diluted share.
This compares to a net loss of approximately 145000 or breakeven on a per share basis in the fourth quarter of 2021, and net loss of 601000 or <unk> <unk> per share in the first quarter of last year.
Cash flow from operations in the first quarter was a negative.
$1 2 million compared to a positive $1 8 million in the prior year quarter.
This quarter's decrease.
It was due to the timing of accounts receivable billings and collections and an increase in inventory.
During the quarter, we repurchased an additional 510000 shares of our common stock for approximately $622000.
So far under the program, we have repurchased two 4% of shares outstanding from when the repurchase program began as of March 31, 2022, we had roughly $632000 remaining for additional repurchases.
Our inventory balance at the end of the first quarter was approximately $7 7 million up from $7 2 million at the end of 2021.
Even with the significant increase in sales in Q4 2021 in Q1 2022, we've been able to successfully procure the parts needed to meet demand and even replenish some of the prior reductions in inventory.
We remain strategically focused on inventory management, however, ongoing labor constraints in supply chain issues combined with another round of stringent COVID-19 lockdowns occurring in China could bring challenges as we head into the summer months.
I will now turn the call over to Ken to provide further insight on our business Ken.
Thank you Ryan as.
As mentioned we are excited about the financial results for the first quarter. We have continued to focus on returning the business back to profitability, while investing in our future and our ability to scale as market demand improves and as we continue to gain traction in new industries.
As Ryan stated the results of the first quarter are evidence of not only an improved market for our core products and technology, but.
But an indication of the progress we are making with our strategic imperatives.
Our traditional upstream and midstream business streams benefited as the combined onshore rig count for the U S and Canada averaged 816 in the quarter, which represents a 16% increase from the previous quarter and a 37% increase as compared to the 2021 full year average.
The average <unk> price per barrel in Q1 was $95 81.
Which is a 23% increase from the previous quarter and a 40% increase from the 2021 fiscal year average.
<unk> drilled but uncompleted well count continues to decrease to 4273 at the end of the quarter remaining docks at the end of Q1 represented 52% drop from its peak talent in June of 2020.
The ryzen drilling activity, coupled with a renewed interest and need to invest in retrofits and upgrades indicates the essential requirement for hydrocarbon based energy.
Though the industry still faces constraints surrounding supply chain human capital regulation and Underinvestment profile continues to be uniquely positioned with a niche product and solutions suite with a dominant market position.
Our expertise and brand reputation continues to bring value to our customers as we support them in improving safety for their team members and protection for their critical assets, while improving the efficiency of their appliances.
On past calls, we have referred to and provided updates on our diversification progress focused on the downstream side of midstream or in other words larger midstream plant operations and facilities are.
Our reputation in this space continues to grow as we continue to attract new customers and earn repeat business with.
We feel that our PFS 3100 solution, coupled with our ability to successfully engineer design and execute on these projects sets us apart from legacy solutions as well as our competition.
We are encouraged by the revenue generation, we achieved in Q1 from completed projects. The sales orders, we received in the quarter as well as the overall growth in the opportunity pipeline, we expect to double last year's revenue related to this growth segment in the fiscal year and we are currently tracking with a run rate approaching $1 5 million.
For the fiscal year.
As an update to our diversification progress in alternative industries. We are thrilled to report that in the quarter. Our solutions were utilized on several projects, including biogas power generation mining landfills and reclamation.
In the quarter, we were able to generate revenue from both repeat and new customers.
As expected and in support of our investment strategy and feature development marketing and sales we were able to close our highest dollar amount to date in non oil and gas revenue in Q1.
Based on our Q1 sales future orders received in our opportunity funnel. We believe that we will be able to achieve triple digit revenue growth in this business stream as compared to the previous fiscal year with an annual run rate approaching $1 million.
In Q1, we were able to close seven opportunities in this segment that are expected to be completed in Q2 and Q3. These projects further expand our solutions into metal manufacturing mining LNG landfill refining biodiesel and food and beverage.
Q1 successes in our traditional and diversification business streams demonstrate an AD validation to the strategic pillars that we have positioned our team to focus on.
We have a shared vision that profile, which resonates and is understood across the team and we are beginning to see the expected results.
Our team members continue to execute in the face of a very challenging business environment.
<unk> chain issues continue to impact us all and though we have fared well thus far profiles not immune new challenges are regularly presented causing the need for our team to pivot and adapt.
We expect some relief through the end of Q2 and beyond however, we expect ongoing challenges throughout the fiscal year.
As an update to our current R&D initiatives, we have implemented a balanced investment approach with the goal of bringing solutions to both our current customer base and markets as well as preparing for the future.
Our R&D team is developing a solution that we feel could solve a significant pain point experienced by upstream and midstream producers related to collecting and reporting of real time carbon emissions data.
Though still in beta testing, we have begun early product trials with encouraging results we.
We have received valuable feedback and we will continue to develop the user experience and bring on further product trials through Q2 and Q3, we look forward to sharing progress on this initiative on future calls and meetings with our investors.
We have also commenced research and invested R&D efforts to support a potential solution to improve the efficiency of the natural draft equipment utilized throughout the oil and gas production and processing industry.
Our goal is to support our customers' ESG initiatives to lower overall, GHT emissions and methane intensity.
In the quarter, we began testing on hydrogen blending at our R&D facility in Atchison, Alberta.
We believe that hydrogen has the potential to be an essential energy source in the future. However, the pathway will begin by blending with natural gas.
Aligning with industry progress, we see the potential migration to hydrogen at higher levels over the next eight to 10 years.
As hydrogen becomes more affordable and readily available we expect to see investment in conversion from natural gas to hydrogen.
<unk> has begun research and is planning for future investments so as to enable ourselves to be at the forefront of this energy source evolution.
We continue to be optimistic about the future of our business our team members and our shareholders our position in our core traditional markets continued to grow in terms of customer acquisition and market share we have begun to improve our position and relevance and being recognized as the go to partner for larger midstream applications.
Our efforts to grow outside of oil and gas, though early are meaningful and are snowballing in the right direction.
We are investing appropriately in our future with respect to our R&D initiatives.
Our M&A strategy remains intact as we continue to look for opportunities that are in line with our strategic initiatives and culture.
Before we turn to questions, Brian and I would like to thank each of you. We thank our team members for their courage dedication and creativity, we want to thank our shareholders and the investment community for their encouragement confidence and interest in profile and our team.
Operator would you please provide the appropriate instructions. So we can get the Q&A started.
Absolutely.
We will now begin the question and answer session.
The question queue, you May press star one on your telephone keypad.
You'll hear a tone acknowledging your request.
Youre using a speakerphone please pick up your handset before pressing any keys.
<unk> Your question. Please press star two.
We will pause for a moment as callers join the queue.
The first question comes from John White with Roth Capital Partners. Please.
Please go ahead.
Good morning, and congratulations on the very nice improvement on your numbers.
Thanks, Jon Thank you. Thank you.
I was interested to hear about the a little more detail on your carbon emissions.
It is.
Take it that's a new product and can you elaborate there.
Do you have this product a casting out in the field right now or how many units is it installed on.
Yeah, Great question, it's something we've been.
We've conducted quite a bit of research on some of the pain points of our customers and we came up with an idea through some of our marketing and research and we do have currently.
For partners out there combination of upstream midstream as well as someone outside of oil and gas company outside of oil and gas, where we have installed kind of MVP minimum viable product to see.
What kind of results, we can see but basically the theory behind it.
All of our customers in this space and really most industry has to get to a point, where they can more fully quantify their missions.
Our early research shows that many of our customers if not all of them.
Well over report and the reason, we do that because it's difficult there's a challenge to it there's some secret sauce, there's some software that needs to be built there is a and it can be quite expensive.
We've invested in developing a low cost we hope recurring revenue solution that will be able to help producers midstream users and eventually other industries actually quantify what they're using in terms of how much gas are burning in their cotr missions, which you can calculate from that so.
We do have.
I think we have about 10 out there right now we're trying to put a bunch more out in the next couple of quarters, but we've got lots of valuable feedback from our customer base.
That are trying to see what else, we need to do to to better tie into their current systems and infrastructure.
But some some early results show that there will be some huge value to our customers to helping them.
Actually know what theyre emitting because right now theyre overstating it.
Okay.
Thanks, very much I appreciate that detail and it sounds very exciting and it sounds like you've.
Got it at diversified.
The sector, a diversified set of testing going on.
Yes, absolutely we're actually looking at.
We're not just done like heated appliances as well. We're also working on some applications that are found in the transportation and distribution of natural gas. There's a we believe in an untapped market there to support customers in that as well.
Thanks, again I'll pass it on.
Thanks, John Thanks, Joe.
The next question comes from abroad, Brown with Lake Street capital markets.
Please go ahead.
Good morning, Brian and Kim.
First question on the 3100 projects that you can give a good overview of all the things you had going on maybe just give a sense of are you seeing a lot more repeat customers and I guess, what's sort of the genesis of this.
<unk> ramp in growth Youre seeing is it really getting the brand out there and operating history, and I guess, what's sort of driving all of this growth.
Yeah, Thanks, Rob Yes.
Yes, great Great question 3100 solution.
We brought it to market.
It's interesting how old the product is getting its about four or five years old, but really hard to get that stable base of customer and application, which we did in the core upstream business before we could even bring it to some of this our diversification efforts, which you mentioned that the downstream side of midstream, we're even doing them in downstream utility business in now.
Outside of oil and gas.
Really it was one that was building up that reference case that operating time as you mentioned, but really it's that brand awareness now the strategy in outside of oil and gas, which we've talked about we had.
Number of projects in the first quarter.
Half of the business was repeat and half of it was new so that's that.
Great we're getting some repeat customers that's showing that.
They like the product and like what it's doing but the strategy is a little different than what we've done in the past where we go to the end user would go to the Oems. We go to the instrumentation companies and since system integrator companies that are living in that space.
Our non oil and gas, it's really a focus on that OEM business no. One really yet we mentioned that we won some projects and metal manufacturing well our sales team, they're not showing up to steel mills are not showing up to those plants.
Wouldn't know us from anybody, but the Oems and the engineers that support those types of businesses and the systems integrators.
A lot of time over the last really year and a half building those relationships getting product trials getting our product into their.
Hans working with their engineers.
And it really just takes a few of them leaping off it takes the our ability to deliver over our competition in this space is a real strategic advantage for us.
As customers try it they have success those Oems and replicate from there. So we look forward to as we mentioned it's snowballing, it's still early but.
You can do some creative math youre all good at that when we talked about that we feel we can triple that business from last year.
Two a meaningful run rate, that's how profilers core business started as well.
To start from somewhere and so we really believe that we'll see some meaningful growth in this space. Ryan did you have anything you want to add on that one.
So I think you covered it well.
It's that work that we've been doing over the last couple of years in building that customer base and even marketing outreach that we've done recently with <unk>.
<unk> paid in during Q1 and in ESG for Energy conference and that actually has generated some business for us as well as just being a part of that and supporting the industry is dealing with these types of challenges and issues.
Getting the word out that we're capable of and that we can do it is really starting to have an impact.
Okay, great great to hear.
And then on the on the kind of demand environment.
With oil kind of staying high do you sort of see this this demand level, continuing or how do you sort of see the demand at this point I know, it's hard to predict a little bit to the environment, but.
Are you seeing kind of continued order activity and strength kind of following on to the Q1 results.
I think we both so we certainly do leave as well.
Go ahead go ahead.
Yes.
This is one of those cases, where we've been in the past, especially the last few quarters going through Covid, but.
If there was a time to feel a little more optimistic and confident in.
Oil and gas production.
This would be yet.
Orders are strong.
As there are challenges with supply chain, yes, but if any of our team members are listening to this we are incredibly proud of how they have adapted.
To make changes on the fly to to go out.
And figure out how to navigate this it's an incredible sight to see it lends to the strength of our team but.
We see this continuing on we see that customers are theyre going to produce they need to.
That DUC inventory continues to come down so that stockpile.
We don't know for sure, but we believe probably less than half of those ducks are probably even a potential to complete there's going to be a lot of debt.
Pent up.
Inventory there so we look at what's happening globally, and although we never condone war or anything like that.
Those things make a difference the fact that we are still getting a little bit of mixed messages from the feds, It's Brian's comments about.
We'll open some land, but youre going to pay more royalties. So we get some mixed messages there, but all in all we believe that North American oil and gas production is is absolutely essential to the world knows that.
We will see it continue.
Sorry to interrupt you.
Yeah, No worries all good great comments, and I Echo those comments as well and just to maybe reiterate a little further.
Not only is our theyre all those challenges and issues on the supply side for oil and gas.
But we are in an environment for the past four to five years. We're here in the U S. There's been a significant underinvestment in the industry in new production and new wells.
In maintenance capital in equipment all of those things that are now that the two coming together at the same time are creating an environment, where it's extremely challenging and.
There has to be a reinvestment in the industry, even just to maintain current levels of production going forward, let alone to try to rebuild or or grow that production level. If we were to replace.
International purchases from Russia, or try to regain in the U S independence in oil and gas its not just flipping a switch and all of a sudden we were back to 13 14 million barrels per day production. There is a lot of Underinvestment, that's happened and we're seeing a drive in our side of the business.
To help support E&ps as Theyre trying to recapture some of that and get back to where they were previously.
Okay, great. Thanks for the color and congrats on a great quarter.
Thank you yeah. Thanks, Rob.
Once again, if you have a question. Please press Star then one.
The next question comes from Jim Mcilroy with Dawson James Please.
Please go ahead.
Good morning, Kevin Good morning, guys.
Okay.
I was just hoping you could comment on the pace of <unk>.
Revenue that you see for the next year and that you can I know youre not going to give specific numbers.
The way I'm looking at your comment.
Says that the.
The demand environment is good.
But the supply chain could hurt you.
And.
Right now do you see that one is outweighing the other or is the supply chain.
Something that you can overcome with the additional sources of supply can you just kind of comment how those two are working against each other.
Sure.
Sure I'll jump in and.
I'll jump in first.
On the supply side.
It's a very challenging environment as everyone's well aware in every facet of your lives.
But.
Even in Q1, we had some things pop up in Q1 that were totally unanticipated we thought we had.
Locked in certain components and pieces of our equipment and had delivery dates.
Out of nowhere those were shutdown delayed.
No no no official data insight and we had the scramble our team did a great job of scrambling, finding new suppliers getting a new source getting thing secured and even then they're further challenges or issues, but we've been working through that we believe we've taken an approach though.
Where we're trying to be as in front of it as we possibly can for example, we put in some extra orders on product that we met we have manufactured directly in China.
Early on and we were able to secure those in the last months before China shut down again. So we were we believe were well supplied in that portion of our product line.
In other areas, we've been putting in advance orders for product that we think we're going to need it.
Towards the end of this year and even into 2023, so we're working with our suppliers to get those orders so that they can start to procure the necessary parts.
And have that procurement cycle buildup with release dates and anticipated times of when we need product in and so forth, but in the short term we are seeing significantly more challenges. We think we're setting ourselves up pretty well for Q3, Q4, and even into 2023, but there are.
Some challenges related to Q2, where we've had some delays.
In the month of April where we've had to delay our shipments for a period of time not all of our shipments that some of our shipments to customers extending the lead times with some of them.
But we have new products coming in and.
And we're working through all of those challenges so.
Maybe this is a long answer to your question, but we think we're doing the right things and we're making the best moves that we possibly can but there are curve balls that come out of nowhere that we have to figure out a way to deal with so far we've been really good at dealing with those.
But you never know, what's coming or how hard is it going to be to deal with.
It sounds like in your commentary.
It sounded like in your commentary and also in the.
It was either in the Q or in the press release that that Q2 had some special challenges that youre trying to work through.
Hearing that right.
Okay.
Yes, I think Thats, a fair way to state it.
We aren't saying that Q2 is going to be a terrible quarter for us, but we are saying that there are challenges in the short term that we continue to deal with and that we're working through.
Do you want to add any other perspective.
Yes, I was only going to change your curve ball to probably more like a knuckleball. It's a curve ball you can kind of predict but.
As Ryan mentioned.
We are.
We look back at things you don't want to look back too much.
But you want to look back and say could.
It had been something we could've anticipated better.
And can we learn from that in the future and this is one of those situations go and ask the Ford Motor company, how they're doing with their supply chain and some of these things were and are grateful position, where we don't have catastrophe.
Probably have a blip, but that being said those knuckleball.
Yeah.
Theyre coming fast and furious.
We continued to try to have to adapt but luckily we've already lived in a world where we have to be ordering way ahead.
That's been a reality for profile for some of our components because the our electronic can you do rely upon multiple vendor layers.
So again as we look back is there something we could've done better on differently.
In these cases.
Tough to predict but.
I think it's more of that blip as opposed to you know catastrophic events.
Got it.
A couple more I'm going to ask both of them now so the first one is Ken could you repeat what you were talking about with the DUC inventories and something about half wont be drilled or can't be drilled.
And then the second question is.
When when you're looking at your operating expenses for the rest of the year it kind of sounds like it's.
It's steady as she goes I mean, there might be a little bit of an increase.
If you continue to have.
Top line growth, but there's not any major ups or downs in the Opex from current levels is how I'm looking at it is is that correct.
So I'll tackle the Duck question, and then you know Ryan jumping on operating expense, but the.
The remaining DUC inventories at the end of the quarter its around 4200.
Is 50% lower than it was in June of 2020.
So those are already wells that had been drilled but they haven't been completed meaning we haven't brought the workover rig they havent brought in the heaters. They havent brought in the sub surface equipment.
And so my comment on <unk>.
50% is kind of a guest that we have no one knows for sure the operators themselves don't know, but what we know is a lot of times.
Drill the pad and they'll just moved on maybe.
They have completed some of the acreage in the area and it's been a low producers has been a high producer if it's been a high producer Theyre going to go after that stuff. If geology says in seismic reading say, let's get this theyre going to get it but we believe that theres a certain percentage, we estimate to save around 50% of those drill.
But uncompleted wells are probably never going to be complete so.
All of us on the call and look at that and go well I know what I'm paying at the pump I know what my electricity Bill is right now I know that.
A lot more money to buy stake right now.
You got to think that that's not going to stop that's probably going to continue because.
The supply behind the demand is not going to keep up.
The feds have dipped into the federal reserve the Untouchable reserve.
There is a shortage.
I don't think we're to the point, yet where we're gonna be seeing people lining up with that.
The pumps for miles and miles, but but who knows so that's my comment on that is that it's one of those things that shows more investment needs to go into the industry.
All your major.
Analysts like Reits that theyre talking about Underinvestment underinvestment, they need to drill and produce because the DUC inventory isn't a safety net anymore.
Sorry long winded answer on that does that kind of clarify for you Jim.
Yes, that's great. Thank you.
And I'll just add to that is we track that DUC count number each month, we've seen a significant.
Reduction in the monthly change in that number.
Several months back quarters back that number was dropping pretty significantly each month, the number of completions in the industry.
Far outpacing the new wells being drilled but that's that has shifted quite significantly with the rig count coming up.
The number of new wells drilled each month is just under the completion number.
The change in the DUC count is coming down so we think that as <unk> explained.
There is that dynamic of of ducks that probably just won't be completed and that that trend is probably going to continue that we may plateau at this DUC count number or the rate of decrease is going to slow down from what it has been.
And then if I jump over to your other question on the Opex side.
We agree with your assessment, we don't have current plans to significantly grow the opex, obviously as we've mentioned numerous times there are inflationary pressures that we will continue to deal with that will be a challenge and.
Labor pressures in all types of things.
They're going to impact our business, but we don't anticipate any significant changes, we're not going to re hire a significant number of people at this point in time, though if demand grows we will continue to hire in some of those hires will be more on the revenue generating side than on the back office.
Side of our business, but we hope and we believe that we're at a sustainable good level from an opex perspective, barring any significant changes or.
Inflationary issues that we don't anticipate at this point.
That's great very helpful. Thanks, a lot guys and take care and we'll talk soon.
Thanks, Jim sounds great. Thanks, Jim.
The next question comes from John Bair, with ascend wealth advisors.
Please go ahead.
Thank you good morning.
Yes, good morning, gentlemen.
Okay.
Good question good two questions one going back to John's John White original.
In your discussion about.
These beta tests when you when youre doing that does the potential customer.
Assist you with the expense on that or is that all upfront and that you're out of your pocket.
Right now those are all out of our pockets.
Luckily there its not expensive hardware, obviously, the R&D behind it has an investment but the hardware itself is not cash.
Capital intensive.
We're able to install it it's not a laborious install it doesn't take cranes or anything or welding, it's pretty simple we do most of it in house.
Set up.
One a little stand and then we ship it out so.
To assist us in terms of labor and connectivity to their systems et cetera, but yes.
Yes, not not a large capital expense for it but right now we're covering that our hope is that of anyone that we do a trial with <unk> is that there are potential customer if theyre not invested are interested in it.
We kind of disqualify them as a beta test, we don't want to put something that someone would have no.
Ever thought of buying.
Right.
And then would you be able to recover any of that cost or would that be.
Built in going.
Forward.
If they became a customer and hopefully a repeat customer.
Yes, we do have some of it built in for the future, but really we're looking.
Long term with the product and scalability in and hopefully you get some good contracts with some of these companies is the goal is to get that recurring revenue contract.
Right, Okay and my other question is it.
Guarding the supply chain have you had any.
This circumstance.
The answers where a particular supplier.
Any factor within the within the as you mentioned I think multi level.
A lot of different touch points.
A.
<unk>.
Just plain gone out of business that can no longer supply.
Particular, part or or component that that might be used.
Along the along the whole process.
Okay.
We have had that makes sense.
Yes, it makes sense.
We haven't had any major significant critical suppliers go out of business entirely.
Plastics are a problem right now.
Any any of our components that are made from plastic and.
Some of our enclosures for example, our manufacturers are having difficulty getting the supply of plastic to make those products. So those are some areas, where we've had to be creative and look at other sources.
And other.
Options potential we had to even get some re certifications done to be able to go with a different option.
And that's again part of the great work that our people have done during Q1 and continue to do so.
Not any that we know of that have gone significantly out of business, but there are many that are facing significant challenges as well.
Mhm.
And then if you do change a supplier like that and you just mentioned having to recertify.
Is that in itself.
A pretty big obstacle I mean does that take.
Considerable amount of time and therefore delay.
You know rolling out that product or not.
Okay.
Normally you want to be.
Uh huh.
Yeah definitely normally that would be a huge stress is anytime you bring up certification.
Eric on your neck go and you get a little bit angry and cranky, but.
In this particular instance.
We had to do a quick re certification Luckily just.
More of a paperwork.
And it wasn't a huge cost is a short timeframe I do still think and kudos to the team. They got through it in record time, I think we were able to express the urgency to.
The certification body so.
Yes, normally it would cause a lot of stress, but luckily, we don't foresee having to do a really any more research. It's more now just.
Finding new components, finding new suppliers for those components doing a lot on the broker market for electronics, which is not fun, but it's a good challenge and opportunity for our team to understand that better.
Just leave it obviously with any more.
Manufacturing of a product you have many layers of vendors, we're not just leaving it to one vendor.
To go and find it we are proactively helping them to make sure that we can keep ahead and keep up with things cause.
It's one of those things where you.
You don't always get the truth from the vendors. So sometimes you got to go to the vendors vendor.
And they probably werent, meaning to fabricate anything but.
We're going a few levels deep because we wanted to just get ahead of this as much as possible.
At the end of the day, we have to tell a customer yes or no.
We want to put their destiny into our own hands.
And generally speaking.
There's been some chatter about how will this help.
Will there be a resurgence in onshoring.
Production and component production and so forth. What's your sense of that are you seeing more of that are you finding more.
Vendors that you can rely on that or that are more let's say North America centric.
As opposed to Asia Pacific.
Well.
Again, when it comes to electronics that doesn't exist in any large scale in North America.
It is here, but it's really not so that would take a major shift in the world. So on that side no but on some of your mechanical goods. We've always tried to have.
Dual or triple redundancy in certain.
In certain product lines. So that we can we can take care of that we.
We mentioned, we've done really well with our direct.
Relations with China, where we're bringing in some some products from there.
But we already have and had in place redundancy onshore to be able to supply that we've we've built partner relationships.
So that we wouldn't have a blip there, yes, it's a changed to a degree.
And in margin, but not significant so far we haven't seen obviously, China is a lot different than it was 10 years ago 20 years ago.
But in terms of electronics.
That is something that Asia really has a strangle hold on.
But that being said are we still looking absolutely, especially on the plastic side of things.
Yeah.
Very good.
Thanks for taking my questions can you keep up the good work.
Certainly thanks John .
Once again, if you have a question. Please press Star then one.
The next question comes from ARIA Cole with Cole capital.
Please go ahead.
Good morning, gentlemen, how are you Paul as well.
Or do you have any questions.
Two quick questions for you.
Regarding you mentioned earlier in the call that there is some products for whom shipment may be delayed from the June quarter into the September quarter can you kind of quantify the total value of products that might be delayed into the September quarter.
In terms of hundreds of thousands of dollars.
Yes.
I think I was the one that made some of those comments and part of what I think.
Were experiencing there is maybe not so much of our <unk>.
Delay between the quarters, but delayed within the quarter.
We have seen some delays in in April , but we expect that later in the quarter, we will be able to recover those.
Though our pipeline of orders is building so.
There there could naturally then be a little bit of it that spills over into other quarters because of the supply chain issues.
<unk>.
Right now I would probably say our best estimate might be that it would be in the range of 10%.
Of what's currently flowing through but again there is lots of things that will come in to impact that we are working to alleviate that as much as possible and to accelerate and bring product in as quickly as we can even faster than maybe what's been quoted are promised to us at this point.
But there are still significant challenges there. So we don't see it being there is certainly not a 50% or even.
30%, 25% delay between quarters, our shifts between quarters, but.
There could be some impact.
Okay fine so I mean, that's.
I appreciate the clarification, we are talking about project delays that might be you know two weeks four weeks something like that it's not like ordering a car where they are saying wait six months.
And then the second question is regarding the carbon emission data product that you're piloting.
Can you alluded the fact that the business model might be recurring in nature is it fair to say that could be maybe like this product maybe it's more of a software event than a hardware product and you'd be.
And they have more.
And so the margins down the road or you don't know them now might be closer to the 80% plus area versus in the <unk> because it's more of a software information product being delivered by network.
Yes, great Great question. So we want to be careful we wanted to share that just because we've had some some early great feedback and we've got customers who are interested in it we want to be cautious obviously public company, we don't want others to know as much about this as possible, but you're absolutely right.
There'll be a little hardware is not the goal here software is the goal and we fully expect and hope that the software margins can.
It can be derived from this.
And again, we hope that it will be all.
An opportunity to not just to take to our existing customers, which is always one of our it's.
It's always a strategic imperative growing.
That does that.
Core business, but we want to take it to our diversification streams as well and that's we think a great opportunity, but yes software is the goal with this software.
Yeah that kind of online platform and portal et cetera.
Okay and then the last thing is regarding this product.
You talked about a minimum viable product I mean isn't good enough that when you make a couple of changes to it based on customer feedback that the next version could actually be commercial are you thinking it's going to take.
Two or three iterations in the product a year away from launch I'm, just trying to sense for how close it is to be good enough for customers to actually go commercial.
Our commercial launch we haven't finalized on that but we're hoping that by the end of the fiscal year that we could be close to or in early commercial launch we're not we're not three or four iterations away.
The hardware itself is.
It is probably where it needs to be there is some a little tweak there the software the user experience is more of the is the fun stuff and making sure that whenever you build a scalable.
So I would say, we're not we're not a year away from the ability to be commercially launch but.
More of the Q4 call.
Two a year.
Got it great. Thank you I commend your your creativity and innovation and best of luck with the pilots.
Thank you.
Excellent Thanks Maria.
There are no further questions in the queue.
I'd like to hand call back to management for closing remarks.
Thank you operator, and we thank everyone for joining us on the call today to discuss our first quarter results, we'd like to thank you. All for your continued support as always we're available for any discussions or questions. You may have will.
We will be participating in the three part advisors virtual ideas conference in June .
For more information or to register please contact three partner advisors team and thank you and have a great day.
This concludes today's conference call.
May disconnect your lines.
Thank you for participating and have a pleasant day.
Yeah.
[music].
Yes.