Brent Hatch - President and CEO Ryan Oviatt - CFO Cameron Tidball - VP, Sales.

William Bremer - Maxim Group Rob Brown - Lake Street Capital Markets Jim McIlree - Chardan Capital Mark Lanier - Pegasus Capital Joseph Reagor - ROTH Capital Partners Ryan Curdy - Pacific Ridge.

Good afternoon, everyone and thank you for participating in today's conference call to discuss Profire Energy's Fiscal Third Quarter ended December 31, 2015. Joining us today is the President and CEO of Profire Energy, Brenton Hatch; and CFO, Ryan Oviatt.

Before we begin today's call, I would like to take a moment to read the company's Safe Harbor statement. 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 focusing on reducing expenses, improving operational processes and making necessary investment. The company's new Burner Management System the 3100, the product's ability to give the company access to new market for future growth.

The company's belief that the strength with the balance sheet will support the company through this difficult industry environment. The company's belief that low oil prices and lack of drilling and well completions impact the company's ability to capture revenue. The company's ability to leverage its current investment into revenues in future periods.

The company's ability to improve treasury management. The company's ability to maximize efficiency and reduce the necessary expenses in future periods. The company's ability to execute on its capital allocation plan as outlined.

The company focusing resources in geographic areas and on research and development believed to produce the highest return on investment. The company's ability to effectively manage cost and create a cost structure with greater leverage in future periods. The company's chemical management system delivering cost savings to customer.

The credit worthiness of company customers and their ability to collect accounts receivable or the company's future performance related to guidance discussed on this call. All such forward looking statements are subject to uncertainty and changes in circumstances.

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 the forward-looking statements.

Factors that could materially affect such forward-looking statements include certain economic, business, public market and regulatory risks and factors identified in the company's periodic reports filed with the Securities and Exchange Commission.

All forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

All forward-looking statements are made only as of the date of 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.

I would like to remind everyone that this call is being recorded and it will be available for replay through February 16, 2016, starting later this evening. It will be accessible via the link provided in today's press release, as well as on the company's website at www.profireenergy.com. Following Mr. Hatch's and Mr.

Oviatt's remarks, we will open the call to your questions. As part of the question-and-answer session, Mr. Hatch and Oviatt will be joined by Profire Energy's VP of Sales, Cameron Tidball. Now, I'd like to turn the call over to the President and Chief Executive Officer of Profire Energy, Mr. Brenton Hatch..

Thank you very much. Good afternoon, everyone. I appreciate you joining us today for our Q3 conference call. We've made a slight change to the timing of our earnings report and the call this quarter and hope this change has allowed more of you to participate and review this financial report in greater detail prior to the call.

Given the industry circumstances, it's hard to be disappointed with making a profit and adding cash to the bank account as we did this past quarter. We feel that our performance relative to the industry and our peers is evidence of management's focus on right sizing the company through respective cost management.

While $30 oil and significantly reduced customer budgets have been and will continue to be challenging for the company, we are confident that the strength of our people and our balance sheet will help us continue to manage effectively during this fiscal period.

We didn’t expect to see $30 oil, but unfortunately that's the fact of the matter and we will do what we can to continue to move forward in spite of the headwinds we face. There are definitely some things we are excited about Profire including our new product the 3100.

We really didn’t market the product for sale until the last several weeks and we are excited about the feedback we are getting and the possibilities to leverage its platform and future modules to diversify the industries we serve.

We believe this product will create avenues for growth in future periods as we [dial in] its capabilities to function in other industrial applications, while also seeing significant opportunities within the oil and gas marketplace, especially with applications we previously could not serve as the viable option to control more than just burners and possibly enter the market with another option to the more costly programmable logic controllers or PLCs.

So there are reasons for optimism even while we struggle in the near term due to the impact of commodity prices on our industry.

We will continue to focus on the areas we can control such as making internal process improvements, strengthening our treasury management both through in our internal controls and building relationships with both customers and vendors, which we believe will strengthen the company in the short and long-term.

As I mentioned on our last call Ryan has shown tremendous capabilities in the area of process and internal management improvement and we are confident that he will continue to deliver tremendous value moving forward. Though we maybe in an enviable position in our industry we recognize that we are fighting an up field battle at the moment.

Low oil prices combined with the lack of drilling and well completion are a real issue for our ability to capture revenue. Additionally the U.S. Canadian exchange rate has worked against this for the past several periods.

In spite of these issues we are working towards building the company to be more commodity price resilient, while we remain focused on our core competencies. We are confident about the future of Profire. With that let's turn it over to Ryan Oviatt, our CFO, to discuss the financial results of the quarter and first nine months of the fiscal year.

Ryan?.

Thanks, Brent. Yesterday after the market closed we filed our Form 10-Q with the SEC and summarized the results for the period ended December 31, 2015 in our press release. Both of those documents are available on the Investors section of our website.

We hope this new format with the financial reporting filed the day before our call has allowed you enough time to review the filing in more detail prior to our discussion today. That said, let's get started with the income statement. In the third fiscal quarter of 2016, our total revenues decreased 40% over the same year ago quarter to $7.6 million.

Based on the current industry environment and near term commodity price expectations, we do not anticipate improvement in customer purchasing in the short-term that will [redeem] the investments we have made and will continue to make in products and markets development, will lead to increased sales of goods over the long-term.

Though we are facing a difficult market we are determined to position the company to capture the greatest amount of revenue in both the short-term and long-term.

During the period we benefitted from process improvements in our sales of service billing which allowed us to close outstanding service orders for work performed earlier in the fiscal year, which we could not go forward or recognize revenue for until complete supporting documentation was obtained.

We do not anticipate that this increase of service revenue driven by the process improvements will continue in future periods. Although it will allow us to recognize revenue from sales of service more timely.

Now moving on, our gross profit decreased to $4 million or 53% of total revenues as compared to $6.5 million or 52% of total revenues in the year ago quarter. The revenues increased, derive from the process improvements in our service division, helped lead to the slight increase in our gross profit percentage year-over-year.

However because of the deleveraging effects derived from our lower revenue levels which we have discussed before, gross margin may fluctuate period to period due to the number of factors including product mix, industry volatility, revenue levels, service margin and others.

We will continue working with our suppliers to reduce the cost of the products we sell in order to deliver further value to our customers and stakeholders. Total operating expenses decreased to $3.5 million or 46% of total revenues from $4.7 million or 38% of total revenues in the same year ago quarter.

As we have discussed before cost management has been a significant focus over the last few periods and will continue to be a focus for the foreseeable future. The company has been successful in its expense reduction measures and will continue to work towards maximizing efficiency and eliminating unnecessary costs wherever possible.

When compared with the same year ago quarter, operating expenses for general and administrative decreased 26%, R&D decreased 33%, payroll decreased 23% and depreciation decreased 27%. We will continue to closely evaluate all expenses and determine what actions if any need to be taken as we position the company for future success.

Total other income during the period was approximately $180,000. The majority of this was attributable to the effect of exchange rates on intercompany transactions. As Brent mentioned earlier, the impact of the U.S. and Canadian dollar exchange rate has had a negative effect on total revenues over the past several quarters.

Because of our exposure to foreign currency exchange rates, due to our operations across the Canadian border, the company will continue to be impacted by foreign exchange fluctuations in future periods. So we are evaluating ways to reduce this exposure. Our effective tax rate for the three month period was 29%.

As stated on previous calls, we anticipate our effective tax rate for the balance of the fiscal year will be slightly less than 30% as we benefit from certain deferred tax items.

Net income for the period was approximately $479,000 or $0.01 per diluted share compared to net income of $1.9 million or $0.04 per diluted share in the same year ago quarter. Now looking at our results for the first nine months of fiscal 2016, our total revenues decreased 46% to $22.5 million compared to $41.4 million in the same period last year.

Our gross profit decreased to $11.3 million or 50% of total revenues compared to $22.5 million or 55% of total revenues in the same year ago period. Our total operating expenses decreased to $10.7 million or 48% of total revenues from $14.1 million or 34% of total revenues in the first nine months of fiscal 2015.

Our net income was $0.8 million or $0.01 per diluted share compared to net income of $6.2 million or $0.12 per diluted share in the same period last year. We continue to maintain a strong balance sheet with zero debt. Cash and cash equivalents totaled $19.3 million, an increase of more than $5.1 million compared to the end of 2015 fiscal year.

We are pleased with the company’s ability to continue to put off cash from our operating activities which will continue to be a focus of the company in future periods. We have experienced working capital improvements in both the accounts receivable and inventory balances are down from year end.

As we discussed in last quarter’s call, we experienced an increase in our inventory balance during the three months period due to inventory arrangements with one of our suppliers. But our focus is on bringing the inventory balance down over time.

We will continue to strategically allocate capital according to the plan outlined in our last earnings call, preserving cash, investing internally, and potential investments in acquiring adjacent technologies, initiating a stock repurchase program or other opportunities.

We believe this plan will ultimately drive long term value for Profire and our stakeholders. So we are currently facing significant market headwinds. We are optimistic about the future of the company.

We have a vision of what Profire can become and we’ll continue to work to build the company and strategically position it to capture opportunities both within oil and gas and other industries in the coming quarters and years. With that, thanks. And I’ll send it back to you Brent..

Thanks Ryan. Those of you who had the pleasure of working with Ryan have seen the value that he brings to the company, and we’re excited to the continued improvements that he’ll help deliver. I want to build off a topic that we’ve addressed before and that will continue to be a focus for the company, the topic of cost management.

We have made significant changes to our cost structure over the last several periods and we’ll continue to look for opportunities to reduce expenses without damaging the long term strategy of the company.

Areas such as natural attrition, where responsibilities can be delegated to a few different people, the reduction of travel and administrative costs, better management of inventory and a focus on creating efficiencies in our services offered, should help more effectively manage costs.

As we manage costs we believe that we will create an internal structure with greater leverage that will be very beneficial with higher revenue levels.

We will continue to consider and make internal investments in our new products as we have communicated that these products will contribute significantly to the company’s future growth even in a down industry.

We will carry on with additional R&D for the CMS and 3100 as well as other products to improve and refine them to deliver the greatest value to our current customers and enable the company to branch off into other industries in future periods.

As I mentioned in the short time the 3100 has been on the market, the feedback we have received is very positive even with a significantly higher average sales price in our legacy system.

Additionally, we're excited about some of the recent tractions with CMS, has made with a few new customers and we believe that this product can help reduce chemical costs for our customers. On the topic of our customers we have fielded questions about their ability to pay on their outstanding balances.

This is a concern the company is taking seriously as there seem to be new bankruptcy announcements daily in the oil field. Fortunately, the vast majority of our customers have kept up with payments and we are closely monitoring customers with balances more than 90 days old.

As you have seen from these statement of cash flows, collections of accounts receivable have been very strong over the past nine months for which our accounting team should be commended. As discussed on previous calls our customer base is growing and we are diligent in ensuring that each new customer is credit worthy.

It's great to see orders from these new customers, which we believe will be a great benefit to the company as the industry environment improves. Though we're confident in the future of the company, the industry volatility has created so many unknown factors as we plan for the future. For that reason we have not made any changes to our guidance.

We are guiding for total revenues between $25 million and $30 million with net income of negative $1 million to positive $2 million.

As we have reiterated before, we feel that it's not a question of whether or not we will make it through the industry storm, it's more a question of how capably we manage the process, how much we learn and how much strategic positioning we can do in the coming quarters. As always we have no debt.

We have significant cash reserves, which seem to keep growing and are implementing a solid capital allocation and treasury management plan for that capital. We will continue to look for opportunities to make investments that we believe could be accretive to the company. Now with that I'd like to open the call up to questions.

So operator, would you please provide the appropriate instructions so that we can get the Q&A started..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from William Bremer of Maxim Group. Please go ahead..

Good afternoon, gentlemen. My first question is on -- first of all nice quarter considering the underlying environment, having strong at least positive cash flow and good cost management.

My first question is based upon underlying pricing and your pricing held up very well on the product end this quarter and I'd like to get a sense on how is pricing in the market for what you're currently seeing and the visibility that you're seeing going forward? And can you comment whether or not is this low $6 million -- is this sort of like the trough level that we could sort of utilize as the base of the product sales going forward?.

Good question, Bill. I think, I'll ask Mr. Tidball, Cam Tidball, to answer the first part of that question, if we could about the pricing..

Sure, hey Bill, how are you?.

I'm fine, Cam, thanks..

A great question and so far throughout the fiscal year which has been obviously troubled even from last fiscal year with commodity pricing, we've maintained our pricing strategy and structure.

We haven't been immune though especially in the last three months to our customers, really they have got more time to ask for deeper discounts, there being especially our [retailers] are being pressured by the end user for cost reductions. So, as of right now, we kind of held with our stance on it.

However we do expect that that will continue to be asked these questions and our response to it has been trying to show the value that we provide, but in request for any sort of point discount, further discount, we are requesting volumes. So that's where we are at with this today.

We're not immune to share it, everyone is asking for it, top to bottom and we hear about it every day. But so far we've been able to hold things but we do expect that this will continue the trend at least for the ask part. So we take things case by case..

Cam, do you have any sense from your sales force as to that second part of the question, the $6 million traffic we can maintain that on a quarterly basis, based on what you're hearing from your people..

Right now, that's a great crystal ball question.

It's definitely where we want to [add] minimum trend towards -- our kind of minimum targets are obviously above that from a sales perspective, but that's a tough question right now Brent and Bill, because right now with CapEx spending, every E&P every month is having meetings of cuts of what they are going to spend on automation technologies.

And of course drilling is one fact and figure, completions is probably more the important side of it. So right now as a trough, first of all I am not sure that I could tell you that's the bottom, but definitely Profire is pushing for minimums of that..

And one for you Ryan, just a quick follow-up. Stellar balance sheets for you to work with as the Chief Financial Officer, is there a proper structure in that you look over Profire and sort of deal with them, okay we have pretty much 50% of the market cap in cash at this point.

I know we are in difficult times but is there a proper structure that you can foresee utilizing some of that cash going forward?.

Yes. Thanks, Bill. We are very proud of our balance sheet and the amount of cash that we’ve got on there. That's again part of the capital allocation strategy that we are looking at and trying to determine what that really proper structure should be, looking at how best to allocate that among some of the options that we've gotten.

As I mentioned early on the call there, there is a balance there between what we are continuing to invest internally in our R&D efforts, also into the 3100 and the CMS products, how we can better roll those items to the market, what we need to be able to support that.

But then also looking at what kind of cash we need to maintain in order to continue to work through this downturn in the industry and potential opportunities that add a cash buy back as well.

So we don’t have that particularly mapped out as exactly what that structure is at the moment, but those are the various options that we are looking to balance between in the short-term as we are moving forward..

Great, thank you all. I will hop back in queue..

The next question is from Rob Brown of Lake Street Capital Markets. Please go ahead..

On your use of cash maybe you could elaborate a little more on your acquisition strategy, are you seeing things come on the market in this downturn that are interesting? Are you sort of waiting and seeing or are there -- are you getting more active as time goes on, more sense of what you are looking at and how aggressive you are going to be?.

Good question, Rob. We are at this point always keeping our eyes open for possibilities.

What we don't want to do -- because we can't see the end of what's going on in terms of the macro picture, we don’t want to get ourselves into a situation where we acquire an institution or an organization where we are going to very well affect our cash flow significantly on the negative side. We are watching.

I get calls on a regular basis from any number of people appraising us of opportunities in that regard and we are in fact watching. But I would have to say we are taking very cautious and judicious approach to this whole question.

Having said that we are very interested in watching for opportunities as we think that there is some kind of bottom to what we are all dealing with here..

Okay, great. Thank you.

And then on your customer side where do you -- I guess can you update us on customer concentration or do you have -- where does your customer concentrations exist right now and any sort of really interesting moves you are worried about at this point?.

I'll have Cam -- I will have Ryan talk about the receivables situation, but Cam could you address the whole customer situation right now..

Yes. Rob so our customer concentration we have four regions. We have Canada which is Alberta, the Saskatchewan Bridge Colombia. We have our U.S. south region which is Oklahoma, Louisiana, Texas. We have our Rocky Mountain region which is the Bakken, Wyoming, Utah and West Texas, so the Permian Basin.

And then we have the northeast region which is the Marcellus and Utica plays which covers West Virginia, Ohio, Pennsylvania for the most part. Overall the four regions kind of jockey back and forth each month for who is the top region.

From a fiscal year perspective though we've had the most success in the Marcellus which is that Northeast United States. As it makes sense right now for them because they are getting prices in that over $4 per Mcf which they can make money in that reality there. So we still have a lot more budget there.

Now they are still impacted by the [mother ships] that exist in Oklahoma, Denver and Houston. But however we are still seeing the very good success there. That has been our most, our highest selling region. But overall our customer account is pretty balanced throughout the four regions on how many customers we have..

Thank you.

Ryan, if you would address the receivables question?.

Yes, certainly. Again one of the good things that we’ve been able to continue to do so far this year is add new customers. For example in this last quarter we were able to add over 20 new customers and continue to broaden the base for our revenues and for our accounts receivables.

In some perspective we are taking a very proactive approach to this because we are very concerned about the credit worthiness of our customers and making sure that they’re continuing to pay us on time. We have active meetings in the team where on a very regular basis we’re looking at account balances over 90 days.

I think even before this latest downturn there were lots of customers that typically took at least 90 days to pay, but we’re continuing to push hard on that and monitoring any of those balances that are over 90 days.

With that regard, just for example, we’ve got over 250 customers that make up our AR balance and we’ve got about 15 top customers that make up about half of that balance. So broadening over what it used to be, there used to be a much greater concentration in our accounts receivable.

But over the last year we’ve been able to continue to add new customers. And the overall customer balances are smaller than what they used to be..

The next question is from Jim McIlree of Chardan Capital. Please go ahead..

Ryan can you tell us what level of the accounts receivables are over 90 days this quarter and then compare it to say last quarter or a year ago? And if you’re not willing to do numbers, can you just talk about it directionally?.

Directionally -- I think I would prefer not to give specific numbers, but directionally from this quarter to last -- or last quarter to this quarter, the balance has stayed about the same as far as a percentage of days over 90s, it's in the 20% to 25% range and we’ve noticed that it stays relatively consistent.

In last quarter there were customers that were of specific concern that we focused heavily on and for those customers we were able to successfully reduce their balances. As the markets continue to deteriorate and time passes, of course the accounts continue to roll over.

So there are new customers in this quarter that have 90 day -- over 90 balances than the exact make up of last quarter. But so far it's been maintained about consistent but I do believe and again I don’t have the numbers in front of me, at this point that the older balances are over say 180 days hasn’t decreased significantly from Q2 to Q3..

And I just want to make sure I understand correctly, there were no customers for revenue or in accounts receivable that were greater than 10% total, is that correct?.

Yes, that is correct..

And just a couple of more things. So the gross margins on the product side were up significantly quarter-to-quarter.

Is that just a function of mix?.

Yes, overall it's a function of the various mix in the products that we’ve got and then we saw a similar trend on the service side and some of that as we mentioned previously is related to the process improvements we were able to achieve in this quarter related to service billing and the timeliness of that..

The next question is from Mark Lanier of Pegasus Capital. Please go ahead..

I add my congratulations on making the profit and positive cash flow in the quarter, given this environment [indiscernible] lot of operating expense control.

My question has to do with your developing ideas about adjacent markets for the 3100 and how that has evolved over the last 90 days and the timeliness of those markets for revenue contribution? The additional question is what the contribution is roughly as a percentage for CMS and where you expect that to be going forward? Thank you..

We’ll have Cam address that first issue of the new markets and then perhaps Ryan to talk to the second..

Great question. The 3100 really -- although we announced it in Q3, really it's kind of still as a soft launch base bringing up adjacent markets or other markets. What we’ve somewhat relied up on is our retailers that we work with that have reached into those other areas.

For example we do have some retailers that are [evolving] some industrial applications like gravel dryers or wastewater technologies or biogas applications.

And really because we don't have that residence expertise in house of what would be needed for all these items or all these different applications, we really, so far in the strategy rely on our retailers to bring that knowledge to us.

And so far one on the last quarter, we've had some opportunities to look at these different things and to see okay, does the platform architecture allow us to get into that space, what changes would be required and so really it's still a function of -- we see that there will be interest in these other areas.

We've had some small success already but what we're going to be looking to do is over the next -- the course of the next nine to 12 months is really refine the strategy of which areas to focus on and which areas to point our R&D team to complete product development in those areas. So, very positive feedback so far.

Again a kudos to our engineering team. The platform is such that the architecture allows us to go really in any direction we want to go, it's just deciding where we want to go, whether it's still a part of the discussion, it's a part of the need assessment [something] we need take -- the need to happen..

Thank you, Cam. One other thing I might add is that -- and Cam alluded to this market, there has to be an adaptation of the 3100 to test these, these different applications out there in new industries. And so that's take a little time for the R&D team to make these adaptations.

But more than that, we want to make certain that the adaptations are not only made but they're tried and tested, that we don't go into those industries with something that hasn't truly been tested properly and find that we end up that they are going to face some help badly.

So, it is relative to timing, it is one of those things that will take some time but we want you to know that we are actively working in that direction of finding these other industries and in which ones we can adapt to as quick as -- most quickly. Ryan, answer to the other question..

Certainly, Mark with regards to the CMS and its contribution, unfortunately we have continued to see a slower uptake from our customers on the CMS product than we would really alike and I think there is a lot of industry issues that have contributed to that.

But overall it continues to be a small portion of our total product sales and again there was some indicators, I think externally and potentially even internally that are contributing to that.

But one of the key things that we've noted is even though it's been a very small portion of our sales, the change from Q2 to Q3 was that CMS sales were over five times greater than what they were in Q2. So we've seen a big increase in that in Q3 and so far we've continued to see additional interest from our customers in this environment.

It's still quite challenging for them to be willing to spend CapEx dollars even though there is a very strong OpEx improvement opportunity, at least from what we've seen in the initial trials and what we believe that's available to our customers.

So that continues to be a challenge for us but overall we remain very confident and optimistic about that product going forward. We've even then working internally with our sales teams to provide additional incentives for them to really go out and push this product especially in the current environment.

I think over the last couple of quarters, there may have been a tendency of the sales teams to focus more on what they know really well and what they do well and that will be the BMS side of the business.

So we are working with them to incentivize additional behavior to not only increase the number of products being sold under CMS but to also increase the number of customers that we're exposing to that product and getting it out there trialing with them..

Finally, is there any update on the legislative front? Also about the application of the deadlines and the enforcement that some of the existing legislation that would require Burner Management Systems?.

We are really waiting to see what happens specifically in Colorado but one of the big challenges here is these oil companies are [earning] in the states that have already problems in this case that allow any legislation and are really reticent to slap more restrictions or costs, if you will on their -- the people that are providing royalties to keep their governments floating.

So it's really interesting to watch this whole thing. They have to kind of protect the golden goose as they were.

Having said that, we also have heard recently from our President that the EPA is looking at any number of things relating to flaring and emission controls and I don't know yet or we don't know yet what that's going to entail, but we suspect that there will be some action on that over the next period.

So, honestly to answer your question, we don't know. We're watching like everyone else but we sense that the government, they are not going to be too onerous and too quick to police the policies that they have been in place in this regard..

Appreciate the answers and wish you good luck..

The next question is from Joseph Reagor of ROTH Capital Partners. Please go ahead..

Hi, guys. Thanks for taking the call and my questions. I guess first of all as its very rare to what some of you guys have done, it's pretty impressive to see an oil services company to have profit in this environment. So keep up the good work there and look forward to seeing more of that. Just kind of three different topics I want to touch on.

The first one kind of following the past couple of questions on chemicals. Can you guys give some more color as to maybe what percent of revenue it is? Or I know you guys say it's a small piece but a little bit more color than that.

And also you guys said that there has been some slow adoption by customers and some of that's the sales force, but can you talk about kind of the some of the factors in the field that has made them slow to adopt?.

Yes. Ryan if you will address the first part of that then Cam if you will talk about the field application of this..

Yes. Certainly for the CMS product as we have said before it's a small portion of revenue, in Q3 it made up less than 5% of our total product revenue..

Cam?.

With regards to adoption, what we've found is that throughout and since the acquisition and once we got the product to a space where it was really I would say market ready, you've got -- something we learned with this product it's different than Burner Management, in the fact that there is so much variety of how each producer administers their chemical program and what they do, what they care about.

Depending on what's coming out of the ground, what chemicals they use and a lot of it is old mine thinking, a lot of it is just the way it's always been done. We have found the meetings are very easy to get because the [entitlement] is there for some quick payback.

However due to the fact that just budgets are cut and budgets are cut we haven’t got the same amount of trial that we thought we would be able to get out there for the companies that have seen some success. Unfortunately today those companies didn’t have a ton of I guess application lease for it, the midstreams.

Obviously what we were allowed is a big upstream company that has 1,500 to 3,000 wells and that's why we haven’t been able to get the complete traction yet and we believe mainly because of budget.

But we have also throughout the year similarly upgraded a few wells, capabilities of the product to meet all the various demand, because it seems every field you go to and even within each field they have a different need than what we at first were able to provide..

Okay, thanks. That's very helpful there because [Indiscernible]. Second kind of topic. Looking at margins, guys you saw a little bit of an uptick in gross margin at, on the products level but a pretty healthy move in services.

Are those moves seasonal? Should we expect those to be sustained moving forward? Maybe if you can give some color there as to if there is any onetime reasons why they expanded more than, than we should expect for further estimate?.

Ryan?.

Yes, certainly Joe. On the products side as Cam mentioned a little bit earlier in the call we continue to get pressure from our customers on cost reductions or cost breaks that we can give them. So in the short-term I think that it's going to be challenged for us.

We obviously want to keep it as high as we can and love to keep it at around that 50% plus but in the current industry environment that one is going to continue to be challenged and we are going to have to manage that appropriately there. On the service side it's on that -- it's a little bit of more challenging.

From a cost perspective in our service department, the way we have it structured now, the majority of the labor cost is pretty much consistent amongst the months. We have these guys on full time employment contracts here in the U.S. So our costs remain pretty consistent and steady.

However the revenue is -- while we kind of mentioned where we were able to realize some pretty significant improvements in this quarter in our profits and that really goes with the documentation side. So our teams go out and they perform work often, when they do that, they are out on the sites. It can be late at night, it can be very remote sites.

And there are typically [not] people from our customers, actually they are onsite with them.

But most of the customers do require us to maintain or to obtain customers sign-off and approval that their work was completed to their specifications and requirements, reduce the additional time that we need to spend tracking down and chasing those signatures and working with our own customers throughout that process.

So because of that it can take some times a significant amount of timeline between when the work has actually performed and the cost is incurred and when we can actually recognize the revenue based on having all the documentation in place.

So in that regard, this quarter we were able to really focus with our service professionals and our administrative staff on the billing side to clean up that documentation, to chase down a bunch of the older documentation and also to make some improvements on how we can get that going forward.

So from the service side, we did realize the benefit in this last quarter, some of that would have naturally come anyway as December is a little bit of a slow month with holidays that we could have done some catch up there regardless.

But anyway we focused pretty heavily on that and realized some additional improvements that we probably would not have obtained otherwise without making that..

And then one final one if I could. One of the things you guys have talked about at launch and you have kind of maybe touched on a bit today is the possibility of taking the Burner Management System into other industries beside the oil and gas.

Can you guys talk about if you have made any headway with specific industries in doing that? I know each one has its own special requirements, but is there any specific places, you guys have had success there?.

Cam could you cover that one please?.

As far as specifics, I wouldn’t point to any one industry saying, hey, that’s the one where we’re going to see the most. As of today if you were to ask me with a gun to my head, I really -- biogas, there seems to be a natural fit for us there. And so that’s one area. But again still very early for Profire.

We don’t have any sales or R&D focus in that area. We’re just highly relying on our retailers of what their needs are in that area. So that’d be the one I would point to, but nothing specifically that I would say, hey, that’s the target you go after right now..

The next question is from Ryan Curdy of Pacific Ridge. Please go ahead..

Can you shed more light on the increased inventory from last quarter related to supplier delays? And how you see inventory trending through next year assuming the environment doesn’t significantly improve?.

Ryan?.

Yes, certainly, Ryan. As we mentioned in our call last quarter and I am not sure if you were able to participate in that, but we had some agreements with our suppliers at the start of the downturn a year ago where we had pre-ordered a bunch of longer lead time items for our products and specifically related to the 2100 Burner Management System.

When the downturn started, we went out and started working with our suppliers not just this particular supplier but all of them in trying to call back some of those orders and reducing the amounts that we had on our order and committed to purchase with them.

For some of the suppliers we were very successful and others we had to come to some arrangements where we were able to defer some of those product purchases for a period of time, but then ultimately we are going to have to bring those on board. That happened in October and November.

So in this last quarter is when we had to bring in some of that additional product from one of our key suppliers at the time when that was coming to us.

It was a full commitment of about $2 million to bring on board and we’ve been able to bring that all on board and even defer a little bit of the cash payments related to that over the next couple of months. But ultimately we brought that additional $2 million on board as part of those commitments.

Again, it's all related to our 2100 Burner Management System which has positioned us well for the future and then we have a large stock of that product. So as purchasing continues we won’t need to go out and request additional products from this supplier for quite some time now because of the supplies that we have on hand.

Overall, from an operations standpoint, we’re working closely with our Operations Manager and our Chief Operating Officer and one of the key focuses for this year is how we can actually bring that inventory level down.

It is high, we admit that it is high and it's higher than we wanted to be right now, especially in the current industry environment, so that is the focus of ours throughout the next several quarters of making sure that we can bring that level down..

This concludes the time allocated for questions on today’s call. I would now like to turn the call back over to Mr. Hatch. Please go ahead..

Thank you. Thanks everyone for joining us today on this third quarter conference call. We'd like to thank all of our loyal customers, our employees, our shareholders for their continued support and encouragement. Please know that we are of course available to our shareholders to discuss any questions and concerns you might have.

So feel free to reach out as you are inclined. Thank you so very much. Have a great day everybody..

Again, I would like to remind everyone that this call will be available for replay through February 16, 2016, starting later this evening, by the link provided in yesterday’s press release and in the Investor's section of the company’s website. Thank you, ladies and gentlemen, for joining us today for the presentation.

You may now disconnect your lines..