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PE

PROFIRE ENERGY INC (PFIE)·Q2 2024 Earnings Summary

Executive Summary

  • PFIE delivered the second highest quarterly revenue in company history with Q2 revenue of $15.16M, gross margin expansion to 51.8%, and EBITDA of $3.0M; service revenue hit a company record as diversification reached 15% of total sales .
  • Sequential momentum was strong vs Q1: revenue +11% q/q, gross margin +230 bps, EBITDA +46%; YoY revenue +4%, while net income was lower YoY due to a $0.8M ERC benefit in the prior-year quarter inflating 2023 results .
  • Balance sheet remains robust with $18.4M in cash and investments and no debt; management also activated a $2M share repurchase program during Q2, adding a capital return lever .
  • Management expects 2H24 to match or exceed 1H and flagged continued diversification wins (projects with MPLX and Kinder Morgan), while inventory growth should slow as they manage the BMS platform transition—key potential stock catalysts include sustained margin strength and visible diversified backlog conversion .

What Went Well and What Went Wrong

  • What Went Well

    • Second highest revenue quarter with improved mix: $15.16M revenue (+11% q/q, +4% y/y) and gross margin up to 51.8% on product mix and fixed-cost coverage .
    • Diversification accelerated to 15% of revenue; combined diversification revenue rose ~40% q/q and non‑oil & gas up ~230% q/q, with marquee wins and backlog “never been higher” .
    • Record service revenue; management is expanding headcount to support demand and sees continued project activity, particularly in the Permian and Northeast .

  • What Went Wrong

    • Net income down y/y ($2.06M vs $2.86M) due to prior‑year ERC credit ($0.76M; ~$0.02/share) that boosted 2Q23 comparables; OpEx up y/y on inflation and growth hiring .
    • Operating expenses rose to $5.27M (35% of revenue) from $4.19M in 2Q23, with G&A and R&D higher; inventory and accrual changes also drove operating cash outflows in 1H24 .
    • External headwinds: lower rigs YoY and M&A-driven customer integration delays; management noted oil price variability and macro uncertainty as ongoing factors .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Revenue ($)$14,400,000 $13,641,140 $15,160,513
Gross Profit ($)$7,800,000 $6,756,772 $7,859,574
Gross Margin (%)54.3% 49.5% 51.8%
Net Income ($)$3,300,000 $1,434,375 $2,062,725
Diluted EPS ($)$0.07 $0.03 $0.04
EBITDA ($)$3,100,000 $2,026,225 $2,958,092

Revenue mix and KPIs:

  • Revenue mix by category
MetricQ2 2023Q1 2024Q2 2024
Product Revenue ($)$13,719,559 $12,691,804 $13,725,996
Services Revenue ($)$840,693 $949,336 $1,434,517
  • Balance sheet and operating KPIs
KPIQ4 2023Q1 2024Q2 2024
Cash & Investments ($)$20,000,000 $16,200,000 $18,400,000
Inventory ($)$14,059,656 $15,747,817 $16,059,628
Total OpEx ($)$5,000,000 $5,019,683 $5,268,034
Diversification (% of Revenue)>13% (FY mix reference) N/A15%
Net DebtNone None None

Notes:

  • YoY net income was pressured by the non-recurring 2Q23 ERC benefit ($0.76M; ~$0.02/share) that reduced 2Q23 OpEx and boosted EPS; R&D rose y/y on new product certifications .
  • Operating cash flow was negative in 1H24 driven by inventory build and reductions in accrued liabilities; management expects inventory growth to slow while maintaining service levels .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal financial guidance (Revenue/EPS)FY 2024NoneNoneMaintained no formal guidance; management reiterated qualitative outlook
Qualitative outlook2H 2024 vs 1H 2024N/AExpect 2H24 to match or exceed 1H; carry momentum into 2025, with quarter-to-quarter fluctuations possible Positive qualitative tone
Diversification contributionFY 2024N/ABacklog “never been higher”; expect to exceed 2023 diversification results Positive
Inventory strategyNear termN/APace of inventory growth to slow; maintain sufficient levels for BMS platform transition Tightened working capital
Capital returnsThrough 6/30/2025N/AAuthorized $2M share repurchase program New buyback authorization

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 and Q1’24)Current Period (Q2’24)Trend
DiversificationFY23: >13% of revenue; entering new verticals . Q1: non‑O&G nearly tripled y/y; multiple RNG/biogas and OEM wins .15% of Q2 revenue; combined diversification +~40% q/q, non‑O&G +~230% q/q; wins with MPLX, Kinder Morgan; backlog “never been higher” .Accelerating
Service revenueNot highlighted in Q4 release. Q1: services resilient .Record service revenue; team stretched, hiring to expand capacity (Permian, Northeast) .Improving capacity required
Macro/rigs & M&AQ1: rigs down; M&A integration delays; LNG pause impacted nat gas pricing .Rigs still down y/y; integration delays persist but expected to normalize; more activity expected in Marcellus/Haynesville 2H .Stabilizing 2H bias
Canada/Trans MountainQ1: Canada activity resilient, consolidation largely done .Trans Mountain opening supports Canadian production ramp; potential WCS differential benefit .Positive
Energy demand & AIQ1: AI to drive power demand; need “all of the above” energy .EIA forecasts higher electricity use; LNG demand growth expected; supports natural gas infrastructure spend .Supportive
Regulatory/emissionsQ1: Quad O B/C, IRA, Canada carbon tax support PFIE solutions .Emissions-focused projects driving midstream wins; methane abatement opportunities continue .Tailwind sustained

Management Commentary

  • “Our second quarter results represent another strong performance…second highest quarterly revenue in company history…continued traction across our diversification efforts, which accounted for 15% of total revenue in the quarter.” — Ryan Oviatt, Co‑CEO & CFO .
  • “In Q2, our combined diversification revenue exceeded Q1 by nearly 40%, with revenue from non‑oil and gas increasing by nearly 230% quarter-over-quarter…our current backlog of diversification business has never been higher.” — Cameron Tidball, Co‑CEO .
  • “We were successful in…winning new high-profile projects with Marathon’s midstream division, MPLX and Kinder Morgan…to help lower emissions at specific plants and facilities.” — Cameron Tidball .
  • “We remain very optimistic about our ability in the second half of 2024 to match or exceed our first half performance and to carry that forward into 2025 and beyond.” — Ryan Oviatt .

Q&A Highlights

  • Service capacity and sustainability: Q2’s record service revenue reflects large projects and stretched utilization; management is hiring additional technicians, particularly in the Permian and Northeast, to sustain momentum .
  • Diversification pipeline: At least one-third of the revenue pipeline stems from diversification; non‑O&G projects (landfill/biogas, chemicals, carbon removal) are scaling and expected to contribute across 2H24 and into 2025 .
  • Legacy business outlook: Despite lower rigs and M&A delays, management expects moderate growth supported by stable commodity prices, increasing gas‑related activity and AI/power demand tailwinds; stability matters more than absolute oil price level .

Estimates Context

  • Wall Street consensus (S&P Global) was unavailable for PFIE at the time of this analysis; as a result, we cannot quantify beats/misses versus estimates. We attempted to retrieve consensus via S&P Global but could not obtain a company mapping, so estimate comparisons are not presented.

Key Takeaways for Investors

  • Mix and execution drove a clean sequential rebound: revenue +11% q/q and GM +230 bps to 51.8%, with EBITDA up ~46% q/q; this points to solid operating leverage on improved mix and fixed‑cost absorption .
  • Diversification inflecting: 15% of Q2 revenue, with strong backlog and wins in midstream and industrial decarbonization niches—improving durability of the model beyond upstream cycles .
  • Services is an underappreciated growth driver: record revenue this quarter and targeted hiring should support throughput; sustained execution would reinforce margin quality .
  • Non‑recurring comps matter: 2Q23 ERC credit of $0.76M (~$0.02/share) inflated the prior year; underlying profitability in Q2 is healthier than the headline y/y EPS delta suggests .
  • Working capital normalization watch: inventory build and accrual reductions weighed on operating cash flows in 1H; management plans to slow inventory growth while supporting demand—an incremental FCF lever in 2H .
  • Capital returns: $2M buyback authorization through mid‑2025 provides downside support and signals confidence; balance sheet remains debt‑free with $18.4M cash & investments .
  • Setup for 2H: management targets 2H24 ≥ 1H24 with continued diversification conversion and potential uplift from U.S. gas basins and Canadian volume tailwinds (Trans Mountain); sustained margin delivery is the key stock driver .

Appendix – Additional Detail from Q2 2024 8‑K

  • Non‑GAAP: EBITDA reconciliation shows Q2 EBITDA of $2.96M (Net Income $2.06M + tax $0.70M − net interest income $0.08M + D&A $0.27M) .
  • Income statement detail: Product revenue $13.73M; Services revenue $1.43M; OpEx $5.27M; Operating income $2.59M .
  • Balance sheet: Cash $8.92M; short‑term investments $3.63M; long‑term investments $5.89M; inventory $16.06M; no debt .