Q4 2022 Profire Energy Inc Earnings Call
Yeah.
Speaker 1: I what.
Speaker 2: Good morning everyone and thank you for participating in today's conference call to discuss ProFire Energy's fourth quarter and full year 2022 operating and financial performance for the period ended December 31st, 2022. As a reminder, all participants are in listen only mode and the conference is being recorded.
Speaker 2: After the presentation, there will be an opportunity to ask questions.
Speaker 2: To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. I will now turn the call over to Steven Hooser, Investor Relations at 3Part Advisors to get the call started.
Speaker 3: Thank you, operator, and thank you everyone for joining today's call. With me on the call today is co-CEO and CFO of ProFire Energy, Ryan Obiet, and co-CEO Cameron Tidwell. Yesterday, after the market closed, the company filed its Form 10-K with the SEC and the SEC
Speaker 3: and discuss the quarter and full year's highlights in a press release. As always, both of those documents are available on the Investor Relations section of the company's website. The transcript of this call will be posted in the coming days.
Speaker 3: Before we begin today's call, I would like to take a moment to read the company's Safe Harbor Statement.
Speaker 3: Statements made during this call that are not historical are forward-looking statements. This call contains forward-looking statements including, but not limited to, statements regarding the company's expected growth, increase in operating expenses, revenue diversification success, the planned research and development of new products, and the development of new products.
Speaker 3: growth in our customer base in the natural gas market. The availability of the company's resources to make the beneficial investments in 2023 and beyond and the company's future financial performance.
Speaker 3: All such forward-looking statements are subject to uncertainties and changes in circumstances.
Speaker 3: Forward-looking statements are not guarantees of future results or performance and involve risks, assumptions, and uncertainties that could cause actual events or results to differ materially from the events or results described in or anticipated by forward-looking statements. Factors that could materially affect such forward-looking statements include certain economic, business, and public markets.
Speaker 3: and the company assumes no obligation to update forward-looking statements to reflect subsequent events or circumstances except as required by law. Readers should not place undue reliance on these forward-looking statements. I would like to remind everyone that this call is being recorded.
Speaker 3: and will be available for replay through March 23, 2023, starting later this evening.
Speaker 3: It will be accessible via the link provided in yesterday's press release as well as the company's website at www.profirenergy.com.
Speaker 3: Following the remarks by Mr. Oviatt and Tidball, we will open up the call for your questions. Now, I would like to turn the call over to Co-CEO and CFO of ProFire Energy, Mr. Ryan Oviatt. Ryan?
Speaker 4: Thank you, Stephen, and welcome to all of you who are joining us on the call today.
Speaker 4: 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 Cam to discuss outlook, strategic direction, and provide an update on our diversification strategy.
Speaker 4: Over the past two years, we have implemented a number of strategic initiatives to sustain our business through the pandemic and to position ourselves for growth as the global economy recovered.
Speaker 4: We have invested in our sales, service, and operations teams. We've been aggressive in procuring inventory and have pursued avenues for our burner management solutions for use outside of our legacy oil and gas markets.
Speaker 4: In the first half of 2022, our results continued to show gradual progress from the prior year. In the third quarter, the recovery of our legacy business and traction with our diversification efforts resulted in the third highest quarterly revenue ever for Profire at that time.
Speaker 4: This momentum continued through the end of 2022, and last night we reported the second highest revenue quarter in company history.
Speaker 4: Despite the historically high inflation, rising labor costs, and strained supply chain, we also reported improved net income and EVA data over the previous quarter.
Speaker 4: The North American pent-up demand created by multiple years of deferred maintenance and upgrades across the oil and gas industry.
Speaker 4: provides an ongoing tailwind for our core business.
Speaker 4: Our diversification strategy, which accounted for 6% of revenue in 2022 compared to less than 1% in the previous year, should also continue to gain further acceptance across non-oil and gas markets.
Speaker 4: Looking at our core legacy business, we believe the oil and gas industry remains strong and EMP companies will likely continue to invest in new technology, new wells, and in new completions to at least maintain current production levels and control costs through operating technology advancements.
Speaker 4: This outlook should continue to be positive for Profirer. With that, let me turn my remarks to Profirer's financial results for the fourth quarter and full year 2022.
Speaker 4: In the fourth quarter, we recognized approximately $14 million in revenue, which represents a 9% increase over Q3 and a 69% increase over the prior year quarter.
Speaker 4: The sequential and year-over-year increases are primarily due to the increased global consumption of oil and gas, ongoing historically high energy prices, and strong growth across our diversification efforts.
Speaker 4: Gross profit increased to $6.6 million as compared to $6.1 million in the third quarter of 2022 and $3.4 million in the year ago quarter.
Speaker 4: Gross margin decreased slightly to 47% of revenues from 47.7% in the prior quarter due to normal fluctuations in product and customer mix.
Speaker 4: Gross margin increased 540 basis points from the prior year quarter thanks to price increases implemented for our products and improvements in freight costs and inventory reserves.
Speaker 4: Total operating expenses for the fourth quarter were approximately 4.3 million compared to 4 million in the third quarter and 3.7 million in the fourth quarter of 2021.
Speaker 4: The sequential and year-over-year increases reflect the impact of cost inflation on our business as well as increases in variable costs associated with increased customer deliveries and increases in performance-based compensation.
Speaker 4: Net income for the fourth quarter was approximately $1.8 million, or 4 cents per diluted share. This compares to net income of $1.2 million, or 2 cents per diluted share in the third quarter of 2022.
Speaker 4: and a net loss of $145,000 or breakeven per share in the fourth quarter of last year.
Speaker 4: Cash flow from operations in the fourth quarter was approximately 1.7 million compared to a negative 309,000 in the prior year quarter.
Speaker 4: For the full year 2022, we recognized $45.9 million in revenue.
Speaker 4: This compares to $26.4 million in 2021.
Speaker 4: The 74% increase is primarily due to the factors stated earlier related to demand for oil and gas production and ongoing recovery from the COVID pandemic.
Speaker 4: Gross profit increased to $21.7 million as compared to $11.4 million in the prior year. Gross margin increased to 47.1% of revenues from 43.3% in the prior year.
Speaker 4: This year over year increase in gross margin is primarily due to the better coverage of fixed costs resulting from the increase in revenue and sales price.
Speaker 4: both of which help to offset inflationary pressures on variable costs.
Speaker 4: Total operating expenses for the year were approximately 16.5 million compared to 13.4 million in 2021.
Speaker 4: The increase is primarily related to higher GNA expense resulting from overall cost inflation, the re-staffing of positions correlated to the recovery in our business, and the recovery in our business. The increase in the re-staffing of positions correlated to the recovery in our business
Speaker 4: as well as increases in variable costs resulting from higher product and service revenue.
Speaker 4: Nevertheless, the overall rate of increase for operating costs was lower than our revenue growth rate for the year.
Speaker 4: R&D expense increased 28% and depreciation and amortization decreased 18% compared to the prior year.
Speaker 4: Total other income during the year was 492,000 compared to 334,000 last year.
Speaker 4: The increase is primarily attributable to fixed asset sales and the associated gains or losses year over year as well as increased interest income on liquid investments.
Speaker 4: Net income for the year improved by $5 million to approximately $3.9 million, or $0.08 per diluted share. This compares to a net loss of $1.1 million, or $0.02 per share last year.
Speaker 4: Cash flow from operations for the full year was $516,000 and our cash and other investments totaled $16 million compared to $17.5 million at the end of 2021.
Speaker 4: The decrease in cash year over year was a result of the 1.2 million spent on pro-fire share repurchases and approximately 600,000 in capital expenditures.
Speaker 4: We had no borrowings or other debt on the balance sheet at year end.
Speaker 4: 7.2 million at the end of 2021.
Speaker 4: The initiatives taken in early 2022 have allowed us to respond to increased customer demand while replenishing some of our inventory to pre-pandemic levels.
Speaker 4: However, we continue to see disruption of the supply chain for portions of our products, and these types of challenges are expected to linger throughout the coming year.
Speaker 4: We will continue to proactively work with our suppliers to secure the necessary parts and components our solutions require.
Speaker 4: Even with all the challenges of the past year, 2022 was a great year for Profire. We recovered to financial and operational performance levels not seen for many years, and we are a much stronger and better positioned company than we were then. We are confident in our ability to leverage this success going forward. I will now turn the call over to Cam to provide an overview of our business.
Speaker 5: Kim.
Speaker 4: Thank you, Ryan. Our Q4 and combined 2022 results represent one of the strongest quarters and years in company history.
Speaker 6: Top-line revenue, increased market share, and meaningful traction in our diversification initiatives demonstrate the strength of our brand, our team, and our products.
Speaker 6: Profire continues to be the trusted partner and market leader in burner and combustion management solutions. In 2022, we were able to achieve significant year-over-year growth in our core and diversification markets.
Speaker 6: These segments include upstream and midstream oil and gas, downstream utility, and downstream
Speaker 6: critical energy infrastructure, as well as non-oil and gas and other industrial markets.
Speaker 6: In the fiscal year,
Speaker 6: of power upstream and midstream business.
Speaker 6: benefited from overall stability in commodity prices, moderate increases in drilling, steady completion activity, and end-user investment in automation solutions.
Speaker 6: EMPs renewed their focus on improving efficiency which, combined with the tailwinds caused by regulation and ESG pressures, has led to increased opportunities for retrofits for ProFire and our partners.
Speaker 6: Profire continues to attract and support the most sophisticated EMPs including EQT, Chevron, Devon Energy, Cinéral, Antero, Oxy and Conoco.
Speaker 6: This segment represents over 90% of our business, which we grew by 70% year over year.
Speaker 6: As we look to 2023 and beyond.
Speaker 6: We believe there remains a significant opportunity. We are optimistic that global energy demand and increased focus on efficiency, safety, and automation from this segment are well supported by Profire's current products and solutions. 2022 marked a banner year for Profire in terms of revenue generation.
Speaker 6: as well as ensuring new heaters are brought online with pro-fire specification. Our customer base includes Dominion Energy, National Grid, Atco Gas, National Fuel, Fortis, as well as numerous OEMs and strategic partners such as Mulcare Pipeline Solutions and the blight company.
Speaker 6: Over the last three years, we have discussed our intentions and strategy to bring our products and solutions into the critical energy infrastructure segment, or what we have called the downstream side of Midstream. In 2022, we achieved nearly 100 percent revenue growth year over year in this strategic area. Our customer base in this segment includes Williams Midstream, Target Resources, and
Speaker 6: Kinder Morgan, TC Energy, DCP Midstream, Enterprise Products, Alta Gas, Energy Transfer Partners, as well as several OEMs that we had traditionally not worked with in the past. New and repeat business in this segment is a testament to the reliability of our products.
Speaker 6: and trust in our team's ability to deliver on projects. The appliances found in this segment are critical to the energy supply chain, and Profire Solutions continue to deliver performance and reliability for our customers.
Speaker 6: The non-oiling depth and industrial area focus for ProFire gained significant traction in 2022.
Speaker 6: We believe our credibility in this space continues to gain strength and momentum, and that we are barely scratching the surface of this long-term opportunity.
Speaker 6: In 2022, we achieved over 400% growth in year-over-year revenue. We completed projects related to biogas and biomass supporting the production of renewable energy. In the fiscal year, we were able to work with one of the largest renewable natural gas producers in the United States as part of their solution to produce
Speaker 6: RNG and reduce CO2 emissions at landfills.
Speaker 6: We believe that this opportunity has the potential to grow as the demand for renewable sources of natural gas continues to gain momentum.
Speaker 6: Other industries that we were able to support with our burner and combustion technology include heat treat and metal manufacturing, water treatment, fly ash production, sand and gravel drying, food and beverage processing, hydrogen reforming, LNG fractionation, as well as hydrocarbon processing.
Speaker 6: at micro-refineries. Our diversification strategy continues to focus efforts in the areas of sales and marketing, service capability, engineering support, and product development investment in this space, and we are excited about the future strength this will add to our company. Our combined diversification revenue for 2022 equated to over six...
Speaker 6: As we look forward to 2023, we are optimistic that many of the tailwinds we benefited from in 2022 will continue.
Speaker 6: global demand for energy continues to grow. The oil and gas industry earned record profits in 2022, which should provide sufficient cash flow to continue funding their 2023 strategies.
Speaker 6: We believe that the oil and gas industry remains stable and will continue to benefit ProFire.
Speaker 6: Clean energy production will continue to garner focus and attention from the energy industry.
Speaker 6: Aligning with our strategy, we expect increased investment in natural gas and liquefied natural gas as policy has shifted more in favor of energy diversification through natural gas.
Speaker 6: These factors should support business activity which drives investment and demand for pro-fire products and solutions.
Speaker 6: Research and development investment and initiatives remain critical to Profire's future.
Speaker 6: We maintain an intentional, balanced effort as we look at short, mid, and long-term product and service development.
Speaker 6: We continue to implement a voice of customer and entrepreneurial approach to product development.
Speaker 6: We look to develop products that enable our customers to solve the problems of today and the future.
Speaker 6: We believe ProFire solutions will remain critical to the energy industry.
Speaker 6: Our value proposition to our existing markets and customers remains strong.
Speaker 6: We have proven that our technology solutions, engineering capability, and technical service expertise provide a compelling alternative to that of our competition and provide value in many new and exciting industries.
Speaker 6: As we develop both core and new markets, we are confident that our solutions will continue to provide industry with safety, reliability, compliance, efficiency, and environmental protection.
Speaker 6: Before we turn to questions, Ryan and I would like to thank you for your interest in and support of Profire.
Speaker 6: To the Profirer team, thank you for your perseverance, creativity, and commitment to our customers and each other, and for the work that you do each and every day to enable our ongoing success. Operator, would you please provide the appropriate instructions so that we can get the Q&A started? Certainly. We will now begin the question and answer session.
Speaker 2: To join the question queue, you may press star, then 1 on your telephone keypad. You'll hear a tone acknowledging your request.
Speaker 2: If you are using a speakerphone, please pick up your handset before pressing any keys.
Speaker 2: To withdraw your question, please press star, then 2. To join the question queue, please press star, then 1 now.
Speaker 2: Our first question comes from Rob Brown of Lake Street Capital Markets.
Speaker 7: Please go ahead.
Speaker 5: Good morning, Rob.
Speaker 8: All right, and Kamau, congratulations on a good quarter.
Speaker 9: Thank you.
Speaker 8: Thank you. Man 1 First, you gave a great amount of detail on the new vertical activity that you've had. It's great to see. How would you characterize those projects in terms of size ranges? How does that breadth of activity result in?
Speaker 4: repeat customers and growth into the future? Excellent question, Rob. There's a lot happening there, obviously, as Cam mentioned, and so I'll turn it over to Cam and let him provide some additional details for you there.
Speaker 6: Yeah, you bet. Good morning, Rob. There is a wide range. Those projects...
Speaker 6: we could see them being a little bit lumpy in terms of some of them could be that $10,000 to $20,000 range and there could be others that we could be more in that $50,000 to $100,000 and beyond.
Speaker 6: And so that's what I mean by lumpy. It could be up and down and depending which type of projects you close in the quarter. But we are now to your question around that repeat business. We're starting to already and we talked about it in the previous earnings calls. We're starting to see repeat business repeat requests for bids.
Speaker 6: potentially some larger scale projects, larger scale scope of automation on some of these plants or facilities that we're working on.
Speaker 6: So as we mentioned in the in our comments
Speaker 6: We see that, again, really not even scratching the surface of what is possible in this combined area of non-oil and gas as well as critical energy infrastructure. There's much to be done. When you get into these spaces, you start to learn more of the problems and pain points that they're experiencing.
Speaker 6: it can to a degree influence and maybe even guide future development for mid and long term. So those projects...
Speaker 6: They're definitely bigger on average than our core legacy business, which we talked about here, the upstream midstream space. On average, at least on double the size of our average sales order, but with the potential to be much more significant.
Speaker 8: Great, thank you. And then how is the visibility on growth into 23? We had a good ramp in the back half as energy prices were strong, but how do you sort of think about the trends in those demand trends continue and how do you see the growth in the future?
Speaker 4: Are really the rig counts and commodity prices and what's happening with completions and drilling activity. We don't right now see a significant increase necessarily coming in rig counts or in the completion and drilling activity. That's been pretty steady, pretty flat, small increases.
Speaker 4: You know, over quarters in the last 12 months. So we think that that will continue. So the count likely coming up a little bit more. We're still just below pre-pandemic levels as far as the rig count is concerned. And even with the completions and the drilling, it's kind of
Speaker 4: gotten to a parity on a monthly basis, averaging around a thousand completions and a thousand new wells each month. So we see that activity continuing fairly steady at these price levels, which overall we think continues to be good, continues to be strong for pro-fire. These are still fairly historically high levels.
Speaker 4: From a WTI perspective, and we see our natural gas recovering a bit back into the 3s and even low 4s by the end of 2024, according to the EIA's prediction. So with that for our legacy business, we think it's kind of just really steady with some modest growth over the coming year.
Speaker 4: We are again very excited about the growth in diversification and the opportunities there. Cam, do you want to talk about the visibility and what we're seeing?
Speaker 6: potential growth-wise for the coming year there? Yeah, definitely. Obviously, you know, 400%, over 400% growth in non-oil and gas last year and over 100% growth in critical energy infrastructure, combining it over 200%. And can we do that every year?
Speaker 6: I guess it is possible. We probably don't expect 400% growth from the non-oil and gas, but is triple digits a potential? Yeah, we think that's a strong opportunity there, very high double digits. When we look at the pipeline of opportunities,
Speaker 6: These are longer-term projects. There's more of engineering that goes into it and planning. You're doing more than just one burner. You're doing probably multiple burners. You're looking at process. You're looking at integration with other elements of the facility. So it does take a little more time for each of these projects to hit. But...
Speaker 6: is last year kind of is the first year we've started to see that trickle in. That started to build a somewhat of a small backlog into this year, which we continue to grow with and reverting even with our core legacy business.
Speaker 6: Things like that come out from the federal government on methane reduction act or the carbon taxes that are north of the border into Canada. Those are all things that are supporting profire's solutions.
Speaker 6: giving greater efficiency. One of the keys to reducing pollutions and emissions is improving efficiency.
Speaker 6: And we've been able to show that time and time again. And we're seeing customers really put a lot of meat and horsepower behind. Alright, we've got all these pneumatic venting devices and applications. What can we do? Profire plays a big part in that with our fully electric fuel train.
Speaker 6: Obviously a BMS system that is able to control and eliminate venting issues. That coupled with some of the other things we're working on, we think it's a great atmosphere for Pro-Fi right now. Oil prices are stable-ish. We'll say ish. Who knows what they'll do, but they're stable overall.
Speaker 6: So again back to that backlog visibility to the future. We can just see from the traction we're getting, the type of web contacts we get, the people finding us because we're getting referred. It continues to grow and we'll see.
Speaker 6: More and more ProFire focuses its efforts from a marketing perspective that way to again bring in these EPCs that work on these projects, bring in the OEMs that are looking for alternatives to traditional FireEye, Honeywell, Siemens, Delta V, all these different types of applications.
Speaker 8: because they're looking for alternatives, which is perfect for ProFire. OK, great. Thank you for all the color. I'll turn it over.
Speaker 2: Thanks Rob. Our next question comes from Jim McIlroy of Dawson James. Please go ahead.
Speaker 2: Our next question comes from Jim McIlroy of Dawson James. Please go ahead. Thank you. Good morning, guys.
Speaker 6: Can we just focus on the traditional burner management system business?
Speaker 6: In the 2nd, half and and again, just focusing on on the traditional burner management system. Can you.
Speaker 4: Can you walk me through or or discuss the trend?
Speaker 10: that you're seeing in
Speaker 10: Oil versus natural gas, so the increase that you saw in the 2nd, half with that.
Speaker 10: an oil-driven increase? Was it a gas-driven increase? Was it...
Speaker 10: Equally both and then. I was hoping that you could then extend that and say.
Speaker 10: what you're seeing for the next six months, again, in both of those oil and gas markets.
Speaker 4: Yeah, certainly. You know, first of all, in relation to the first half of last year versus second half, one of the big things that we talked about in prior calls was supply chain challenges for us. The first half of the of 2022 was significantly
Speaker 4: challenged on the supply chain side more than the second half. We had a lot of
Speaker 4: Harder time getting systems from our manufacturers in the 1st, half of 2022 compared to the 2nd, half. So there was pent up demand in the supply chain and with our customers and their orders. And that was spread across both oil and natural gas.
Speaker 4: Certainly, you're seeing good growth and good activity between both of those across all of our business, all of the basins in each of the areas. And across all of our customers as well, so that was 1 big contributor to the difference between those halves. The success of
Speaker 4: of the second half doesn't mean that we aren't still seeing supply chain challenges because we certainly are and there are challenges.
Speaker 4: now seem to be mostly on the component side for the BMS systems, the electronics, the chips, the all the little things that go into that, that a lot of things ultimately come from sources originating in China. So those challenges are still there, but we have been able to get more systems in.
Speaker 4: in the second half of the year. And you know going into 2023, we're still seeing that there's likely to continue to be challenges. Every time we solve one there's a new one that continues to pop up. So that certainly has played a big part in maybe some of that.
Speaker 4: seasonality, if you will, of what we saw over last year and the stability and the timing of us being able to deliver to our customers. Cam, do you want to talk more specifically about the trends between our oil versus natural gas customers?
Speaker 6: You bet. When you talk about
Speaker 6: when you look at these because a lot of the producers it's really difficult for us to to identify okay, is that a natural gas or an oil unless you look at for example the Northeast United States and certain shale plays in Alberta Canada
Speaker 6: We definitely saw some some great growth in the Northeast with the Appalachia. You look at producers like...
Speaker 6: We definitely saw some great growth in the Northeast with the Appalachia. You look at producers like EQT.
Speaker 6: some great growth in the Northeast with the Appalachia. You look at producers like UQT and Tero.
Speaker 6: Ascent, Southwestern, like those companies were very busy. They were very much working towards one, they all seem to be very aligned in a North American, even United States LNG strategy. And you can't feed those LNG trains without natural gas, of course.
Speaker 6: So we did see a big pickup with that.
Speaker 6: Obviously, higher natural gas prices help that.
Speaker 6: the conflict that still remains in Europe with Russia and Ukraine, that is still impacting that drive and the world's demand for natural gas.
Speaker 6: As we mentioned in the comments, we're seeing more and more governments even in Europe saying, well, maybe natural gas is okay. Maybe we can use that as a green or a transition fuel. And so that's where Profire believes this is not a transition fuel.
Speaker 6: away from fossil fuels. It's a diversification needing all energy sources. We were very busy in the Permian Basin this last year.
Speaker 6: which is a an oil traditional oil market. However, they produce a lot of natural gas as well. So overall, I would say it's very difficult for us to quantify a percentage, but if you were to say last year did we benefit from natural gas, absolutely, there was a strong pickup there.
Speaker 6: With that, when we talk about critical energy infrastructure and you're dealing with your pipeline companies, your plants that do bulk treating, all the different ethane extractions, it was a banner year for ProFire and we see a tremendous pipeline for the future.
Speaker 6: So, Jim, it's hard to really quantify that. I was actually... Interesting, I was reviewing our end user list, because we don't always sell directly to the end user, but we do quantify it.
Speaker 6: in the United States and Canada, it's really difficult because they all do, a lot of them do both and it's really hard to know at what percentage.
Speaker 10: Right, well, that's helpful. Thank you. I was just trying to puzzle through a couple of things on the natural gas side. Obviously gas prices have.
Speaker 10: Have come down recently and I'm curious if you've seen any reaction to that as yet from your customers and then.
Speaker 10: Secondly, the war in Ukraine has essentially made the US the supplier of natural gas to Europe . And so that looks like it's going to be a permanent market share shift to the United States. So that should benefit you. Any comments on either of those issues?
Speaker 6: Yeah, for sure and natural gas prices are down. We expected that, we all did. It was called for. We've had, even though I wouldn't say it's been a warm winter for me, this week has been terrible, but it's been pretty warm overall winter, which has allowed stockpiles to gain.
but the real problem is going to come especially for Europe . It's not this winter that they were worried about. It's the summer coming up, the cooling season, and the next winters.
That's the concern. So as much as natural gas probably is going to stay...
Ryan gave a good range that we're predicting, barring we don't want any more conflicts in the world. But it's still at.
better prices than these producers are used to operating under. And just the requirement for LNG, you can't build enough solar panels. You can't build enough wind turbines. You can't build enough of these alternative energy sources to be able to.
to make up this gap that exists for global energy demand. So we see a lot. That's why we invested in the Northeast as we have. It's why all of our products are great for natural gas and for oil. We see a huge runway for that.
All right, that's great. Thanks a lot, guys.
All right, that's great. Thanks a lot, guys, and talk to you later. That's it for me. That's it for me.
Yeah, thanks, Jim. Once again, if you have a question, please press star, then 1. Our next question comes from John Bear of Ascend Wealth Advisors. Please go ahead. Thank you. Good morning, Ryan and Cam.
I'm here, the last caller, with regards to any trends you're seeing in end-user demand due to the drop in natural gas. That pretty well was covered. I've got a couple other ones, though. In your press release, you indicate you showed...
about 7.4 million in cash and 1.1 million in short-term investments yet
you indicate $16 million in cash. So I'm wondering where that difference is. Is that partly in your accounts receivable?
being higher versus prepaid because the difference there is about eight and a half million. So if I put the two together I come up with you know roughly 16-17 million. Am I seeing that right? Yeah actually there's one other piece that I think you're missing and it shows up on the long-term side.
It's our long-term investments which are liquid, they're bonds. So overall we have our cash portfolio which as you stated is in that $7 million number. We've got some short-term investments which are CDs and money market accounts.
then we have some bonds as well, but all of those are highly liquid assets that are secure for us to be able to tap into as we need. So when we talk about cash and liquid investments, we're picking up each of those three pieces. So when you add all three of those together, you get to the 16 million, and then the accounts receivable is on top of that.
that would be another item that will shortly be cash for us. Right, so what are you seeing in that regards with your the payment cycle on your accounts receivable? Are you seeing any change there? Is it you getting paid a little sooner or about the same or people taking longer to pay you or how's that working?
Overall, I think it comes and goes. Towards the end of any full fiscal year, we see a little bit of a slowdown. I think most companies tend to hang on to their cash to keep it on the balance sheet as of the year end, but then start to pay again shortly after the year turns.
But overall we are very happy with what we've been able to achieve with our customers on payment. I think the majority of our customers pay within 90 days. Historically for the oil and gas industry that number was pushed out to above 120 even sometimes 180.
natural oil companies and natural gas companies historically had a reputation of taking forever to pay. We work really hard with our team, we're proactive, we send out communications on a regular basis.
And we, when customers aren't paying timely, we hold back on their next order. So, in an environment like this, where supply chain is challenged and people need product, they're paying and they're paying on time. We were even very surprised through COVID, through 2020 and even 2021.
we anticipated that there would have been a much bigger cash crunch. And I think it just really proves the validity and the importance and the criticality of our products to our customers that even through all of those difficult times and even current to now, they're willing to pay and they pay pretty well. It doesn't mean we don't have.
some customers that are difficult, we do, and you know, we have little challenges that we deal with, but overall we're quite pleased with how customers are treating us and paying their bills.
That's very good to hear. That leads into my next question, and that is that your OpEx was up about 7.5% quarter over quarter sequentially and 16% year over year. You also indicated that you were able to build your inventory levels back up to 7.5% quarter
roughly pre-pandemic levels. So the question is, then, is that something where you can increase prices given that you do see supply chain constraints and therefore maybe improve your margin some?
and maybe start to build your cash levels back up into the 20 million-ish or above levels? Yeah, certainly a number of things.
impacting the multiple questions I guess that are built built into that overall statement there. So you know a couple things on the trends quarter over quarter year over year obviously our our costs have increased just like every business out there we're fighting the battle on inflation and its impact on our business.
Thankfully, we're seeing the rates of inflation come down a little bit, so that's been helping and we're happy that those numbers have started to move in the right direction there. On a quarter over quarter increase of...
A lot of that had to do with the fact that in Q3 we were able to benefit from the recognition of an employee retention credit that's available for businesses out there in the US government. So we qualified for a credit there which reduced our overall payroll taxes.
and that benefit hit in Q3, so OPEX in Q3 was actually down from Q2, and Q2 and Q4 are on fairly similar levels.
But overall that that was just a in inter quarter trend, but on an annual basis
We certainly have employed price increases and that's helped with the margin perspective. We on an annual basis were able to move up from 43% margin to 47% margin. So certainly seeing some price increase impacts there.
And we'll continue to do that as much as we believe we can with our customers and as much as we need to to continue to fight off inflation. And some of that increase as well in our cost structure and in the G&A line is where the variable compensation such as sales commissions
other variable comp comp plans hit. So as we perform better, as our revenue grows, those variable costs also grow. So we'll continue in growth periods, we'll continue to see some growth in OPEX that's just simply tied to those variable impacts.
But overall, we continue to try to control across as much as we can and we'll continue to look at price increases in other areas to either reduce costs or try to offset them as best we possibly can.
And the last one here, you mentioned component electronics and so forth coming in. So that was an electrical problem?
from China causing some of the supply chain issues and so forth. What have you been doing to try to source from other regions either domestically in North America or kind of get away from being dependent on Chinese sourcing? Yeah, great question and lots of interest there.
But from a direct perspective, we have actually reduced our direct purchasing and direct reliance on China over this past year. One big component that we previously were sourcing out of China was our flame arrestors and our flame arrestor housings. And we've started to move that to other opportunities onshore.
which is proving to be a good benefit for us and it's faster deliveries means we don't have to carry as many of those products. So that transition has gone well and we're looking at other things that we continue to source directly out of China would be burners and air plates, some enclosures for our BMS systems and we continue to look for other opportunities onshore.
so much of that is tied back into Asia and China specifically. We continue to work with our contract manufacturers.
and their suppliers to find alternates wherever possible. We get some of that stuff through Japan, which is another great alternative. But all of those things are in short supply, continue to be in short supply and high demand.
continues to be a very challenging environment, but it's certainly something that we are focused on wherever possible without realizing massive increases in cost, trying to balance that relationship and how we procure going forward. Very good. Thank you very much for taking the questions. Congratulations on the quarter.
Thanks everyone for joining us on our call today to discuss our fourth quarter in full year 2020 results. We'd like to thank all of you for your continued support. As always, we are 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 meeting with many of you there. Thank you and have a great day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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