Profire(PFIE) - 2023 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements cover balance sheets, operations, equity, and cash flows Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 | December 31, 2022 | Change | % Change | | :-------------------------- | :------------ | :---------------- | :----- | :------- | | ASSETS | | | | | | Total Current Assets | $39,546,100 | $32,033,626 | $7,512,474 | 23.45% | | Total Long-Term Assets | $21,759,537 | $21,895,910 | $(136,373) | -0.62% | | TOTAL ASSETS | $61,305,637 | $53,929,536 | $7,376,101 | 13.68% | | LIABILITIES | | | | | | Total Current Liabilities | $7,449,050 | $6,788,315 | $660,735 | 9.73% | | Total Long-Term Liabilities | $786,940 | $556,741 | $230,199 | 41.35% | | TOTAL LIABILITIES | $8,235,990 | $7,345,056 | $890,934 | 12.13% | | STOCKHOLDERS' EQUITY | | | | | | Total Stockholders' Equity | $53,069,647 | $46,584,480 | $6,485,167 | 13.92% | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % Change (YoY) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | % Change (YoY) | | :---------------------------------- | :------------------------------- | :------------------------------- | :-------------- | :----------------------------- | :----------------------------- | :-------------- | | Total Revenues | $14,443,577 | $9,633,147 | 50.0% | $28,997,039 | $19,136,287 | 51.5% | | Gross Profit | $7,414,445 | $4,403,145 | 68.4% | $15,247,554 | $8,959,849 | 70.2% | | Income from Operations | $3,223,908 | $94,807 | 3300.0% | $6,529,711 | $783,802 | 733.1% | | Net Income | $2,857,157 | $284,829 | 903.1% | $5,446,778 | $911,990 | 497.2% | | Basic Earnings Per Share | $0.06 | $0.01 | 500.0% | $0.12 | $0.02 | 500.0% | | Fully Diluted Earnings Per Share | $0.06 | $0.01 | 500.0% | $0.11 | $0.02 | 450.0% | Condensed Consolidated Statements of Stockholders' Equity (Unaudited) Changes in Stockholders' Equity (Six Months Ended June 30, 2023) | Item | Amount | | :------------------------------------ | :------- | | Balance, December 31, 2022 | $46,584,480 | | Stock based compensation | $583,493 | | Stock issued in settlement of RSUs and accrued bonuses | $378,526 | | Tax withholdings paid related to stock based compensation | $(249,681) | | Foreign currency translation | $272,804 | | Unrealized gains (losses) on investments | $45,871 | | Net income | $5,446,778 | | Treasury stock repurchased | $(57,958) | | Balance, June 30, 2023 | $53,069,647 | Condensed Consolidated Statements of Cash Flows (Unaudited) Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Activity | 2023 | 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Net Cash Provided by Operating Activities | $1,782,659 | $621,690 | $1,160,969 | 186.7% | | Net Cash Used in Investing Activities | $(703,333) | $(41,908) | $(661,425) | 1578.3% | | Net Cash Used in Financing Activities | $(255,552) | $(1,316,939) | $1,061,387 | -80.6% | | Effect of exchange rate changes on cash | $37,740 | $(32,286) | $70,026 | -217.0% | | NET CHANGE IN CASH | $861,514 | $(769,443) | $1,630,957 | -211.9% | | Cash at End of Period | $8,246,092 | $7,418,827 | $827,265 | 11.2% | Notes to the Condensed Consolidated Financial Statements (Unaudited) NOTE 1 - CONDENSED FINANCIAL STATEMENTS The unaudited statements conform to US GAAP with condensed disclosures and are not indicative of full-year results - The financial statements are unaudited and include only normal recurring adjustments necessary for fair presentation[20] - Certain information and footnote disclosures normally included in US GAAP financial statements have been condensed or omitted[21] - Results for the three- and six-month periods ended June 30, 2023 and 2022, are not necessarily indicative of full-year operating results[21] NOTE 2 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The company provides burner-management products to the oil and gas industry and is expanding into new markets - The Company provides burner-management products, solutions, and services primarily for the oil and gas industry within the US and Canadian markets[22] - The Company is making progress in expansion efforts outside of these markets into other industries with combustion and burner management requirements, as well as into other international locations[22] - There have been no changes to the significant accounting policies from the Company's most recent Form 10-K[23] - The adoption of recent accounting pronouncements is not expected to have a material impact on the Company's financial position, results of operations, or cash flows[24] NOTE 3 – INVENTORIES Total net inventories increased to $13.02 million, primarily driven by a rise in finished goods Inventories, Net | Category | June 30, 2023 | December 31, 2022 | Change | % Change | | :--------------- | :------------ | :---------------- | :----- | :------- | | Raw materials | $219,388 | $166,927 | $52,461 | 31.4% | | Finished goods | $13,148,684 | $10,452,930 | $2,695,754 | 25.8% | | Subtotal | $13,368,072 | $10,619,857 | $2,748,215 | 25.9% | | Reserve for obsolescence | $(351,880) | $(325,877) | $(26,003) | 8.0% | | Total | $13,016,192 | $10,293,980 | $2,722,212 | 26.4% | NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets increased to $2.40 million, largely due to a rise in prepaid inventory Prepaid Expenses and Other Current Assets | Category | June 30, 2023 | December 31, 2022 | Change | % Change | | :-------------------------- | :------------ | :---------------- | :----- | :------- | | Prepaid inventory | $1,803,652 | $784,420 | $1,019,232 | 129.9% | | Accrued receivables | $127,551 | $881,176 | $(753,625) | -85.5% | | Prepaid insurance | $115,800 | $240,785 | $(124,985) | -51.9% | | Interest receivables | $79,407 | $72,761 | $6,646 | 9.1% | | Tax credits | $33 | $118,035 | $(118,002) | -99.9% | | Other | $273,233 | $217,462 | $55,771 | 25.7% | | Total | $2,399,676 | $2,314,639 | $85,037 | 3.7% | NOTE 5 – ACCRUED LIABILITIES Accrued liabilities increased to $4.37 million, driven by higher inventory-related payables and deferred revenue Accrued Liabilities | Category | June 30, 2023 | December 31, 2022 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Employee-related payables | $1,904,768 | $2,404,848 | $(500,080) | -20.8% | | Deferred revenue | $619,612 | $420,827 | $198,785 | 47.2% | | Inventory-related payables | $1,422,623 | $285,109 | $1,137,514 | 399.0% | | Tax-related payables | $136,165 | $54,762 | $81,403 | 148.6% | | Warranty liabilities | $100,156 | $74,103 | $26,053 | 35.2% | | Other | $191,304 | $334,345 | $(143,044) | -42.8% | | Total | $4,374,628 | $3,573,994 | $800,634 | 22.4% | NOTE 6 – LEASES The company details its financing and operating lease arrangements for office equipment and warehouse space - Financing leases for office equipment have typical terms of 36 to 60 months, with a weighted average discount rate of 4.50% and a weighted average remaining lease term of 3.0 years[29] - The Company leases one warehouse space as an operating lease and considers other office space leases short-term, electing not to recognize them on the balance sheet[32] - Operating lease expense recognized for the six months ended June 30, 2023, was $37,204 (compared to $36,914 in 2022)[32] Financing Lease Cost (Six Months Ended June 30) | Component | 2023 | 2022 | | :-------------------------- | :------- | :------- | | Amortization of right-of-use assets | $14,478 | $21,068 | | Interest on lease liabilities | $1,787 | $1,252 | | Total financing lease cost | $16,265 | $22,320 | NOTE 7 – STOCKHOLDERS' EQUITY This note details treasury stock, a new share repurchase program, and various equity incentive plans - As of June 30, 2023, the Company held 5,085,203 shares of common stock in treasury at a total cost of $7,394,281[34] - A share repurchase program was authorized on May 9, 2023, allowing the Company to repurchase up to $2,000,000 worth of common stock through April 30, 2024[35] - Outstanding equity awards as of June 30, 2023, include 785,995 restricted stock units (RSUs), 1,057,044 performance-based RSUs, and 673,450 stock options, with $986,064 in remaining compensation expense[36] - The 2023 Executive Incentive Plan (EIP) for executive officers is based on total revenue, EBITDA, revenue source diversification, and safety/environmental performance, with earned compensation paid 50% in cash and 50% in restricted stock[41][42] - The 2023 Long-Term Incentive Plan (LTIP) includes time-based and performance-vesting RSUs for executives, with performance metrics such as Total Shareholder Return and EBITDA as a Percentage of Total Revenue over a three-year period (January 1, 2023, to December 31, 2025)[43][45][47] NOTE 8 – REVENUE Revenue is recognized upon product delivery or when service invoicing rights arise, with significant growth shown across all categories - Product revenue is recognized when the product is delivered to the customer or shipped on a customer's account, transferring control to the customer[61] - Service revenue is recognized when the Company has the right to invoice the customer for the work completed[61] Disaggregation of Revenue by Category | Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % Change (YoY) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | % Change (YoY) | | :----------- | :------------------------------- | :------------------------------- | :-------------- | :----------------------------- | :----------------------------- | :-------------- | | Electronics | $5,530,863 | $3,596,755 | 53.8% | $11,616,476 | $7,131,762 | 62.8% | | Manufactured | $3,272,774 | $1,765,916 | 85.3% | $6,397,599 | $3,673,455 | 74.2% | | Re-Sell | $4,799,247 | $3,498,011 | 37.2% | $9,217,321 | $6,933,888 | 33.0% | | Service | $840,693 | $772,465 | 8.8% | $1,765,643 | $1,397,182 | 26.4% | | Total Revenue | $14,443,577 | $9,633,147 | 50.0% | $28,997,039 | $19,136,287 | 51.5% | NOTE 9 – BASIC AND DILUTED EARNINGS (LOSS) PER SHARE This note reconciles the calculation of basic and diluted earnings per share, showing significant year-over-year increases Earnings Per Share (EPS) Summary | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.06 | $0.01 | $0.12 | $0.02 | | Fully Diluted EPS | $0.06 | $0.01 | $0.11 | $0.02 | | Basic Weighted Average Shares Outstanding | 47,393,768 | 47,092,275 | 47,284,749 | 47,285,782 | | Fully Diluted Weighted Average Shares Outstanding | 49,473,080 | 48,699,208 | 49,349,488 | 48,865,186 | NOTE 10 – SEGMENT INFORMATION Financial data by geographic segment shows strong sales growth in both the US and Canada, driving consolidated profit higher Sales by Geographic Segment (Six Months Ended June 30) | Segment | 2023 | 2022 | % Change | | :------------ | :----------- | :----------- | :------- | | Canada | $4,186,352 | $3,883,583 | 7.8% | | United States | $24,810,687 | $15,252,704 | 62.6% | | Total Consolidated | $28,997,039 | $19,136,287 | 51.5% | Profit (Loss) by Geographic Segment (Six Months Ended June 30) | Segment | 2023 | 2022 | | :------------ | :----------- | :----------- | | Canada | $(956,458) | $(954,005) | | United States | $6,403,236 | $1,865,995 | | Total Consolidated | $5,446,778 | $911,990 | Long-Lived Assets by Geographic Segment | Segment | June 30, 2023 | December 31, 2022 | | :------------ | :------------ | :---------------- | | Canada | $5,130,003 | $5,067,965 | | United States | $5,654,642 | $5,476,238 | | Total Consolidated | $10,784,645 | $10,544,203 | NOTE 11 – SUBSEQUENT EVENTS Management reviewed all material events through the report's issuance date and found none requiring disclosure - Company management reviewed all material events through the date this report was issued[72] Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations Management discusses financial performance, highlighting significant growth driven by demand and improved supply chains Overview - Profire Energy, Inc is a technology company providing solutions to enhance the efficiency, safety, and reliability of industrial combustion appliances, primarily in the oil and gas industry[79] - The Company's legacy business focuses on upstream, midstream, and downstream transmission segments of the oil and gas industry in the US and Canadian markets[79] - Profire is actively expanding into other industries with combustion and burner management requirements and into other international locations[79][84] Principal Products and Services - The Company's burner-management systems ignite, monitor, and manage pilot and burner systems used in various oil and gas applications requiring heat generation[80] - Profire's technology enables remote operation, reducing the need for manual interaction, improving safety, and helping reduce emissions by safely reigniting failed flames[80][81] - Burner-management systems help oil and gas companies achieve increased safety, greater operational efficiencies, and improved compliance with industry regulations[81][82] - Profire burner-management systems are designed to comply with North American safety and industrial codes and standards, including CSA, UL, and SIL[83] Environmental, Social and Governance Focus - Profire's products and solutions are developed with a core focus on safety, environmental impacts, reliability, and efficiency, aiming to protect human life, the environment, and customer investments[85] - Profire technology and solutions are integrated into applications to significantly reduce the release of methane and volatile organic compounds into the environment[87] - Remote monitoring capabilities of Profire's controls reduce the need for field personnel travel, improving safety, reducing emissions, and decreasing operating costs[88] - Operator safety is central to the burner-management solution technology, ensuring proper fuel gas shut-off and increasing physical distance between humans and combustion processes[89] Results of Operations - Revenues for Q2 2023 increased by 50% ($4,810,429) compared to Q2 2022, driven by strong customer demand, increased sales prices, and supply chain improvements[91] - Gross profit margin for Q2 2023 was up 5.6 percentage points from Q2 2022, but down 2.5 percentage points from Q1 2023, influenced by product, service, and customer mix[93] - Operating expenses for Q2 2023 decreased YoY and QoQ primarily due to an employee retention payroll tax credit, offsetting increases in headcount and cost inflation[94] Quarter-over-Quarter Financial Performance | Metric | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | | :---------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Total Revenues | $14,443,577 | $14,553,461 | $13,971,018 | $12,829,338 | $9,633,148 | | Gross Profit Percentage | 51.3% | 53.8% | 47.0% | 47.7% | 45.7% | | Operating Expenses | $4,190,537 | $4,527,308 | $4,279,751 | $4,000,983 | $4,308,337 | | Income from Operations | $3,223,908 | $3,305,800 | $2,292,914 | $2,117,893 | $94,806 | | Net Income | $2,857,157 | $2,589,621 | $1,825,022 | $1,210,748 | $284,829 | | Operating Cash Flow | $1,260,879 | $521,780 | $1,712,709 | $(1,818,322) | $1,814,039 | Six Months Ended June 30, 2023 vs. 2022 Financial Performance | Metric | 2023 | 2022 | $ Change | % Change | | :---------------------- | :----------- | :----------- | :------- | :------- | | Total Revenues | $28,997,039 | $19,136,287 | $9,860,752 | 51.5% | | Gross Profit Percentage | 52.6% | 46.8% | | 5.8% | | Operating Expenses | $8,717,843 | $8,176,047 | $541,796 | 6.6% | | Income from Operations | $6,529,711 | $783,802 | $5,745,909 | 733.1% | | Net Income | $5,446,778 | $911,990 | $4,534,788 | 497.2% | | Operating Cash Flow | $1,782,659 | $621,690 | $1,160,969 | 186.7% | Liquidity and Capital Resources - Working capital increased to $32,097,050 at June 30, 2023, from $25,245,311 at December 31, 2022[99] - The Company generated $1,782,659 of cash from operating activities during the six months ended June 30, 2023, primarily due to increased net income[100] - Net cash used in investing activities was $703,333, primarily for purchases of investments, property, and equipment[100] - Net cash used in financing activities was $255,552, mainly related to taxes paid on employee stock awards[100] - As of June 30, 2023, the Company held $17,355,141 in cash and investments, representing its core excess liquidity[100] Off-Balance Sheet Arrangements - The Company has not engaged in any off-balance sheet arrangements and does not plan to in the foreseeable future[102] Item 3. Quantitative and Qualitative Disclosure about Market Risk This section is not required for the company - This section is not required for the Company[103] Item 4. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective Evaluation of Disclosure Controls and Procedures - Management, including the Principal Executive Officers and Principal Financial Officer, concluded that the disclosure controls and procedures were effective as of June 30, 2023[104] Changes in Internal Control over Financial Reporting - Management concluded that no material change in internal control over financial reporting occurred during the quarter ended June 30, 2023[105] PART II — OTHER INFORMATION Item 1. Legal Proceedings There are no known pending or threatened legal proceedings that would materially impact the company - To the best of management's knowledge, there are no legal proceedings pending or threatened against the Company that may have a material impact[106] - There are no actions pending or threatened against any of the Company's directors or officers that are adverse to the Company[106] Item 1A. Risk Factors Readers are directed to the Form 10-K for detailed risk factors, noting that unknown risks may also exist - Readers should carefully consider the risks discussed in the Company's annual report on Form 10-K for the year ended December 31, 2022[107] - Additional risks and uncertainties not currently known or deemed immaterial may also have a material, adverse effect on the business[107] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 47,073 shares in June, with $1.94 million remaining under the authorized plan Share Repurchases (Three Months Ended June 30, 2023) | Period | Total Number of Shares Purchased | Weighted Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans | | :----- | :------------------------------- | :------------------------------------ | :---------------------------------------------------------------- | :-------------------------------------------------------------------- | | April | — | — | — | — | | May | — | — | — | $2,000,000 | | June | 47,073 | $1.23 | 47,073 | $1,942,051 | | Total | 47,073 | | 47,073 | | Item 3. Defaults Upon Senior Securities This item is not applicable to the company - This item is not applicable to the Company[109] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the Company[110] Item 5. Other Information This item is not applicable to the company - This item is not applicable to the Company[111] Item 6. Exhibits This section lists all exhibits filed with the report, including incentive plans and officer certifications - The exhibits include the Profire Energy, Inc 2023 Equity Incentive Plan (Exhibit 10.1)[113] - Certifications of Co-Principal Executive Officers and Principal Financial Officer are included (Exhibits 31.1, 31.2, 31.3, 32.1, 32.2)[113] - XBRL Instance Document and Taxonomy Extension documents are provided[113] Signatures The report was officially signed on August 9, 2023, by the company's Co-Chief Executive Officers - The report was signed on August 9, 2023[117] - Signatories include Ryan W Oviatt (Co-Chief Executive Officer and Chief Financial Officer) and Cameron M Tidball (Co-Chief Executive Officer)[117]