Brenton Hatch - Chief Executive Officer and President Ryan Oviatt - Chief Operating Officer and Director Cameron Tidball - Vice President, Sales & Marketing.

Joseph Reagor - ROTH Capital Partners James Patrick McIlree - Chardan Capital Markets, LLC Robert Duncan Brown - Lake Street Capital Markets, LLC Alfred Blair Blaikie - The Money Channel.

Good afternoon, everyone. Thank you for participating in today’s conference call to discuss Profire Energy’s Fiscal Second Quarter Ended September 30, 2016. 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 investments, management of working capital and responding to industry changes, the company’s ability to leverage its new Burner Management System the PF3100 into new areas of the oil and gas industry and into other industries giving the company access to new markets and future growth, the company’s ability to accelerate product release timelines, the company’s belief that an improvement in industry conditions including the stabilization of oil prices will provide an improvement in revenue, the company’s ability to manage inventory levels, the company’s recent cash investments providing an improved rate of return, the company’s ability to execute on its capital allocation plans, the company’s ability to effectively manage costs, create a scalable cost structure with greater leverage in future periods and to continue to generate positive cash flows, the company’s intent to continue the share repurchase program, and the company’s ability to employ capital to generate meaningful returns in the future periods.

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 November 17, 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 the remarks by Mr. Hatch and Mr.

Oviatt, 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 VP of Sales, Cameron Tidball. Now, I would 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. Thank you for joining us today. As we communicated previously, we expected our financial performance in the first-half of this fiscal year to be down compared to the same period of last year and on par with Q4 of last year.

However, this quarter we saw many positive signs in the industry and we’re able to outperform both internal and external expectations. In spite of our industry continuing to face many obstacles, we have maintained our focus on providing our customers with valuable products.

We believe we are well-positioned to transition out of this industry downturn and are poised to fully support a growing customer base. We remained consistent in this quarter, in that we were able to generate positive cash flow from operations.

Our cost management strategy has been very successful as we again were able to reduce operating expenses compared to the first quarter of this fiscal year which are down significantly from the same quarter a year ago. Our inventory levels are also coming down as our sales activity has increased.

Working capital management will remain to be a key focus, allowing us to manage our assets to proactively respond to industry changes. We continue to execute a stock buyback program, which we believe is one of the best places for us to invest right now.

We continue to be vigilant in identifying other opportunities where the company’s products can be used. We believe that the 3100, our new combustion controller will drive significant value in the coming years for the company. There is increased interest from customers in the 3100 and its capabilities.

In addition to looking for opportunities in other industries, we are focusing on other opportunities to leverage the 3100 into new applications that we weren’t able to service previously. We remain optimistic for our company, and believe that we positioned ourselves well.

We’ve invested in R&D, implemented effective cost-cutting strategies, taken advantage of the slowdown to more extensively train our personnel, focused on generating positive cash flow, and we’ve been able to grow our customer base. We believe these actions will enable us to emerge stronger than before the industry downturn began.

Before I talk any further, I want to turn the call over to Ryan Oviatt our CFO to discuss the financial results for the quarter.

Ryan?.

Thanks, Brent. Yesterday after the market closed, we filed our 10-Q with the SEC and discussed the quarter’s highlights in a press release. As always, both of those documents are available on the Investors section of our website, along with this transcript in the coming days.

In this quarter we were able to see the fruits of some of our fiscal planning and budgeting, as we are able to realize a modest net income for the quarter. Let’s begin with a look at the income statement.

In our second fiscal quarter of 2017, our total revenues increased to just under $5 million or an increase of 26% compared to the first fiscal quarter of 2017. Total revenues decreased 38% over the same quarter a year ago.

This increase in revenue from the first quarter can partially be attributed to the stabilizing of oil prices in the mid- to upper-40s over the quarter. And looking at the industry as a whole, we believe there are several positive indicators that oil prices are on the rebound.

The Baker Hughes North American rig count hit a five-year low of 404 rigs in late May 2016. As of November 4, the rig count has recovered steadily to 569 rigs, which is an increase of 41% from the low in May. Additionally, since mid-2014, the number of drilled but uncompleted wells has increased significantly.

However, that number has begun decreasing over the last several months. We believe these industry trends will have a positive impact for Profire and our customers in the coming quarters. Now moving on, as compared to the first quarter of this fiscal year, gross profit increased by 5% primarily due to changes in the product mix for the quarter.

Our gross profit decreased to $2.6 million or 53% of total revenues as compared to $4 million or 50% of total revenues in the year-ago quarter. While revenue increased this quarter total operating expenses decreased slightly to $2.75 million as compared to the previous quarter.

This decrease is primarily driven by the company’s continued focus on cost management and operating cost reductions achieved over the past nine months. Operating expenses for general and administrative decreased 20%, R&D decreased 11%, and depreciation increased 16% as compared to the same quarter a year ago.

Our cost cutting initiatives combined with ongoing cost management have positioned us well to respond to the market in the second-half of our fiscal year. Total other income during the period was roughly $100,000 which was attributable to interest income and foreign exchange transaction gain.

Our net income was $74,000 or $0.00 per diluted share compared to a net loss of $605,000 or a loss of $0.01 per diluted share in Q1 of this fiscal year. This compares to net income of $779,000 or $0.01 of income per diluted share in the same year-ago quarter.

Cash and cash equivalents totaled $11.6 million as compared to $22 million at the end of the first fiscal quarter of 2017. The company invested $11.1 million in low risk CDs, bonds and mutual funds. Without these investments, our cash position would have increased to $22.7 million.

We believe this will provide an improved rate of return, while allowing our cash to remain secure and liquid. We have made significant improvements in our working capital accounts over the past year. Our operations department continues to focus on inventory levels and rightsizing to match customer and market demand.

The accounts receivable balance has increased this quarter due to the ramp-up in sales, but remains an appropriate level in the view of management. We continue to strategically allocate capital according to the plan we have previously communicated.

We remained focused on the preservation of cash, seeking opportunities to acquire adjacent technologies and conducting our stock repurchase program among other value-creation activities. We believe this plan will ultimately drive long-term value for Profire and our shareholders.

In previous earnings calls, we discussed how we believe our cost cutting and cost management plans were scalable, if revenues begin to improve which we believe they will in the second-half of fiscal 2017. This quarter is evidence of the effectiveness of that plan as we were able to increase revenues by 26% and had a slight decrease in total expenses.

We remained committed to managing our costs, but will not forgo investments that could have significant long-term benefits for the company, and allow us to take advantage of timely opportunities as the industry recovers. The past year has been challenging for the company.

However, over the past quarter we were able to see oil prices stabilize and increase revenue. We believe that the industry will continue to improve. We believe we are well-positioned to take advantage of any market improvements in the coming months and quarters. With that, thanks and I’ll send it back to you, Brent..

Thanks, Ryan. As Ryan has highlighted, we continue to generate positive cash flow from operations and have begun investing in higher interest income opportunities, as well as in our own stock. We truly believe that the best place to invest our money is in Profire, and we’ll continue to do so.

We will continue to make internal investments in our new products, because we believe these products will contribute significantly to the company’s future growth. We recently decided to invest further in research and development to accelerate the timeline in which we will be able to provide products to the market.

In particular, we will continue to invest in the 3100 and its capabilities. This increased investment in R&D will allow us to more fully explore opportunities in this and other industries, and determine where our products and technologies can provide a solution.

As Ryan previously mentioned, the rig count in the industry is starting to increase, drilled but uncompleted wells are available to our customers should oil prices increase. Since its high in June of 2014, oil prices have been volatile and saw the most prolonged downturn in the industry in over 15 years.

That said, the past quarter we saw these prices start to stabilize. We believe that the stabilization of oil prices will allow our customers to budget and plan, which will lead to increased sales for Profire. The result of this quarter demonstrates that our strategic planning and direction through this industry downturn is producing positive results.

If the industry conditions continue to improve, we are well-positioned to take advantage of opportunities as they arise. We continue to operate debt free and we have significant cash reserves.

We are increasing our internal investment to be better able to expand our stable of products for both current customers in gas and oil, as well as possible future customers in other industries. Thank you for investing and showing interest in Profire. We try to be available for questions and comments.

We hope you have a sense of our passion here at Profire, because many of us internally are shareholders, of course, and are anxious to recapture the historical profitability and growth we experienced for so many years.

We are confident that our current course of action and plans for the coming months will do so, and hope you have the same enthusiasm for Profire. Now with that, I’d like to open the call up to questions.

Operator, would you please provide the appropriate instructions, so we can get the Q&A started?.

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] One moment please, while we poll for questions. Our first question comes from Joseph Reagor with ROTH Capital Partners. Please proceed with your question..

Good morning, guys..

Good morning, Joe..

Hey, Joe..

First of all, congrats on continuing to show positive cash flow, a little bit better than breakeven results and positive EBITDA in a sector that’s been under so much pressure and with your peers dealing with far worse scenarios..

Thank you..

So I think you guys have done a good job there. I have a couple of questions. I guess the first one being just on the margin expansion on the products segment. It went back to kind of historical levels.

And I was wondering - was that driven by basically fixed cost coverage so as your revenue increase to fixed cost or what they are, and you’re able to see some margin expansion.

And what else drove the margin expansion, and then view on sustainability of it? Could we see a further increase moving forward or is the Q2 level good kind of benchmark?.

Ryan?.

Yes, certainly a great question, Joe. I think it definitely comes into play a little bit in our product mix overall. In the last quarter, we’ve seen an increase in activity, obviously demonstrated by our [indiscernible]. And that’s allowed us to sell more of our products that that we produce and that have those higher margins.

So we are very excited to see it return back to that historical range. I think it’s probably a good range to look forward off of at this point in time. The 3100 definitely can carry much higher margins for us. So as that product line grows we may see some other movements there.

But for right now, I think that’s definitely a good mark for us to continue with..

Okay. That’s good to hear. On your chemical management system, can you give us any additional color on what sales look like for that product in the second quarter? I know it’s still small part of the story, but it’d be good to see some growth there..

We agree. Cam, can you take that one..

You bet. We had - we’re still trying to get that product out to the market in the way we would like, we’re still under 3% of our total revenues for the quarter. We’re in the CMS category. We have had some excitement. We still have optimism and believe that it is viable and interesting product to our customers especially now.

As we move forward - companies are giving more of a sense that they’re not just in survival mode anymore. Although that still exist that they are looking to the future, they are looking to technology to help them save. And that’s where we hope to come in and support them with that..

Okay.

And any quantifiable number on the sale side or just that 3% is kind of the best detail you can give?.

Right now, that’s about, yes, we’re shy of 3% for sure for the quarter. And it has been for most part very stable at that for the last few quarters looking to [indiscernible]..

Okay. And then one final one, if I could, it seems like your sales are tracking with the rig count, but if I understand the sales process, it’s more important how many wells are being completed.

So could you give us maybe some insight into exactly when a company calls you to place that order, are they calling you when they’re drilling the wells, are they calling you when they’re completing them, are they calling you after they’ve finished the completion process?.

Cam?.

Right, yes, you bet. All the above, you’ve hit it. What we’ve found more and more is because the end-user is becoming more choosey of their OEMs who produce the actual production equipment that our products go on. They have more choice, because obviously supply and demand. And we’re seeing more of a just-in-time inventory strategy from customers.

So they’re waiting till the better end, before they’ll order for the most part. Now that being said that plays well to Profire strength of having a healthy inventory, where our competitors don’t have that luxury.

We’ve seen in the several quarters where this is - it’s been somewhat of turning point for some customers, because of our strategy of having boots on the ground in every area, of having ample inventory, so all those things kind of bode well for Profire.

With respect to, again your question of when the order –again, it is all over the place, but we - I would say that it tends more to be more closer to the end, when they know they’re going to complete the actual well..

I might add as well that it depends on who it is that - which of our customers is buying the OEMs up and put it on equipment as they’re manufacturing this equipment, before it goes out to the oilfield itself. And so there is a little - I mean, it does happen a little in advance in those cases. Thanks, Joe, for calling today..

Thank you..

Yes, thanks, Joe..

Our next question comes from Jim McIlree with Chardan Capital Markets. Please proceed with your question..

Good morning, Jim..

Yes, hey, Jim..

Good morning, Brent.

How are you?.

Doing great. Actually you can probably hear me coughing in the background. I’m not as bad as Cam, who has pneumonia. So kudos to him for being on this call, but I’m doing fine. Thank you for asking..

So above and beyond the call of duty. So, Ryan, you talked that the mix was good, and that’s why you had the high gross margin. And then later on, you said it was because more proprietary products versus the sell through.

Was there any special - were there any other issues in the mix like there was more 3100 led to the richer mix or was it just kind of more 2100s and 1800s versus the sell through product, and that’s what drove the margin improvement?.

Yes, a great follow-up question there, Jim, on the mix. I think we are seeing an increase in the 3100 projects. The number of projects over the last two quarters has kind of been in the 9 to 10 range per quarter. The number of modules associated with those, each of those can have various numbers of modules.

But they were in the 30s on average, and the overall revenue is slightly up as far as 3100 sales are concerned. We did see a sizable jump though in 2100s as well, which I think contributes to that specifically as far as just the other sales on or sale on products that we’ve got. So it’s really just coming from those increases that we’ve seen so far..

Okay.

And was the increase in revenue from the June quarter was that with a specific - was that concentrated, because of a specific customer or in a specific region or was it broad-based?.

Pretty broad based; but, Cam, maybe you can answer that question and provide the best color on that..

You bet. Was it becoming closer to calendar [ph] year-end? We did see a small influx from customers that are saying, okay, we’ve got to get rid of some budget. It wasn’t near what we’ve seen in the past. But there is a little bit of flux. But exactly like Ryan said, it’s pretty much spread out.

But there were, I would say, half-a-dozen strategic customers that we brought on as new customers from our competition who have started to purchase..

When I hear that the way I’m interpreting it is that those are new customers for you, for what were previously small customers for you and those are coming on.

Is that - am I interpreting that correctly?.

Yes. You would be right on that. Sometimes we would have had the customers in certain fields or certain shale plays, where we might not have had them in other areas. But we’ve brought on some new customers in the last quarter, as well as the fact that that a more stabilization, people are going to spend a little bit more..

Got it, okay. And, Ryan, the inventory levels I know have been coming down. But they’re still seeing kind of stubbornly high.

I’m just hoping you could again help me understand what the issues are with reducing inventory, and where you would like to get it?.

That’s a great question. And it’s one that we continue to focus on with our operations team. We still have a large stock of inventory related to the 2100 stuff that we discussed a year ago, where we had to do additional purchases from LogiCan, that we had ordered even before that when things were rocking and rolling.

So we’re still working through some of that inventory with them. We have various different models of 2100s that are sitting in inventory at different levels as well, and some of those models are selling more rapidly right now than others.

So we’ve been looking at ways to convert some of those that we have an inventory from one type of model to another that’s selling more quickly. So we’ve done a little bit of that, but we’re also focusing on reorder points for the inventory that is selling more rapidly right now.

So some of that depends on the basins as far as the different models and some of the customers. But overall that’s what we’ve seen. We still have a large buildup of inventory related to our 2100 that we’re working through. But I am very pleased to see that we’ve been able to bring it down about 2 million so far..

Right, right. Okay.

And my last one again for you, Ryan, just some of the movements in cash in the quarter, the $5 million or $6 million that’s going to long-term investment and the $5 million you said it’s going to short-term investment, I’m just trying to make sure, I understand what your strategy behind that is and if that signals anything in particular..

Overall the strategy that we’ve worked on for the last nine months really with the board, and with the banks, we’ve partnered with Merrill Lynch and Bank of America as far as our cash positions in our investments.

We’re looking for highly secure and highly liquid assets that we’ve invested in CD’s, bonds, and a few mutual funds, some of the bonds have a longer term horizon, which is push them on the balance sheet into the long-term category, others are shorter term with the CD’s and some of the other bonds.

So it’s showing up in several places on the balance sheet, but overall they’re very secure and highly liquid assets, and we’ve just put in there to earn a bit more money than we can get just sitting in our bank account..

But it’s not any of the latest and greatest fanciest financial engineering products that Wall Street likes to sell that eventually blow up, it just kind of a straight vanilla kind of thing..

Yes. We found most of those don’t fit very well into the highly secure and highly liquid category. So we’ve avoided those..

Perfect. That’s what I would expect from you guys. All right. Thanks a lot. I appreciate it..

Jim, thank you for asking Ryan all the questions instead of me..

Our next question comes from Rob Brown with Lake Street Capital Markets. Please proceed with your question..

Good morning, Rob..

Hey, Rob..

Good morning, Brent, to ask you a question just to get back in the mix here. What sort of gives you confidence that you’re seeing in turn is it sort of recent or what is the recent customer interest levels and order patterns into the quarter here. Where do things going to sit today..

We certainly have seen an increase in the requests for quotes and so on. It’s been - as Cam said, we wondered if some of that might be trying to deal with budgets before year-end for some of these companies that’s pretty typical of what happened this time of year.

But we have definitely seen a renewed interest, we apparently some of these companies actually have, but just we wondered for a year to if that was ever going to happen again, but we are seeing a definite increase in interest requests for quotes on our products and service actually..

Okay, good.

And then on the 3100 product, you see additional customer interest, if you’ve seen interest outside of your customer base into new industries yet or is it really just more expansion within your current customer base?.

Well, I would say both, Rob. We now have Cam address this just a couple of specifics on this in a second. But we have identified some areas in oil and gas, where we haven’t traditionally been able to serve the needs, and so that really for us has been although it’s not a new industry certainly new marketplace for us.

And so we’ve been identifying those things, and find it because of our experience with oil and gas that we’re quite comfortable working those areas. Some of those needs for the 3100 are different from our other products in that there is - there are capital budgets to be spent even in difficult times in those arenas.

And so that’s been an advantage to it, but Cam why don’t you speak to that other - to the other industry question..

You bet. Obviously, one of the questions we always will ask ourselves is the - how do you delve into these other industries and how far do you go and how many resources do you put towards it. Obviously, Brent answered it well. There is still so much within our industry that we just could never serve before.

And a good percentage, in fact over the last quarter and last two quarters, 3100 revenue has been specifically that, just things we and projects we would not have been able to even bid on before, if we didn’t have the 3100.

With that being said, to-date we’ve done gravel dryer, we’ve done grain dryer, and we have a little bit of interest there, although, we believe based on our research not a huge market as of yet for us. We’ve even put a 3100 into a company that manufactures glass ovens. And we’ve seen some positive insight there.

We don’t believe that it’s a massive industry for us, but as we attend these trade shows, people see us, they’re interested in us. They don’t like the status quo that they’re dealing with. They see that we might have a better mousetrap for them, if that’s the word that we can use here.

So, again, still so much on our nontraditional oil and gas business that we can advance and look towards becoming more proficient in..

Okay, great. Thanks for the review. And then last question you mentioned some R&D spending uptick.

What’s the degree of that relative to where you’re at? Is it significance of the P&L or what do you think in terms of R&D uptick?.

We’ve worked with the R&D group over the last little bit. And decided that it was an area where we wanted to invest ahead of kind of the larger uptick in the market and continue on the 3100 development, and some other products. There are a lot of 3100 features and capabilities that are in the hopper there for our R&D team.

And as we’ve talked with them, we kind of looked at what’s their current staffing levels and capabilities were and decided that we wanted to be able to bring some of those features forward and bring them up faster. So over the next six months, we’ve agreed with them an uptick of about 20% to 25% of additional cost in R&D..

Okay, great. Thank you..

Thanks, Rob..

[Operator Instructions] One moment please, while we poll for question. Our next question comes from Alfred Blair Blaikie with The Money Channel. Please proceed with your question..

Yes, hi guys, how are you doing?.

Hey, Alfred..

Good..

All right, I just wanted to - first of all, you guys really are picking up ground there in the oil and gas. I just had to ask you a quick question here.

Are you guys and your sales team trying to convert people with some of those old dogs that you’re talking about that do the wells and like to do it manually still? Is that part of the business becoming easier to convert these guys, when they see how cost saving and simple it is? Or does that really have to do with the oil and price moving up and down? Is that just - is that a significant, that’s - is that the wall to overcome in your selling process? Is it all based on oil price and what’s the best oil price that would have them convert to using you guys?.

Well, Cam, that sounds like a tough enough question, you should handle them..

Okay, you bet. Thanks for the question. First on the oil dogs, who are still doing things the old way, it definitely still exists, especially in the United States. A lot of customers, a lot of potential customers are still doing things with their old fields, their old equipment pneumatically, lighting with raguman-stick [ph].

It’s still for sure being done. And so we do have still some conversion activities from our sales team working with those types of customers. For the most part, anything that comes out brand-new from a manufacturer will have a burner management system on it. For the most part safety requirements EIA, EPA restrictions, pretty much taken care of that.

It’s just the old legacy equipment that we’ll still need to do some work on. I believe that we are seeing a switch there, but oil prices do come into play with the old dogs. And we know that. We have customers where we’re specified in, but they will not do their old wells until they believe that it’s from a budget perspective feasible.

We have some work to do there with bringing to them the efficiencies. There can be gain to safety. There can be gains so that they eliminate or reduce the chance of injury or worst. So that’s kind of where we are with that, if that answers the question.

With respect to oil prices, name your shale play, and name your county, and name your operator, and then we’ll be able to tell you what that magic number, as it varies within shale play, depending on depth, depending on cost structure, whether they’re public or private.

So to give you a WTI number for the whole country or North America is almost impossible. But I know for a fact, we’d love 80 - 80 or 90, that would be great.

Did that tackle all your questions and concern?.

All right, sounded like it did. Operator, we can move on..

He hung up and….

Okay. Our next question comes from Jim McIlree with Chardan Capital Markets. Please proceed with your question..

Hi, Jim again. Brent, I’m still not going to ask you a question..

Oh, good. Okay. Thank you..

Ryan, in a previous question you were talking about R&D applications, you were saying, spending upwards of 20% to 25% more.

And I’m just trying to understand what the base is? You’re going to increase R&D on the 3100 by 20% to 25% or total R&D by 20% to 25%?.

Total R&D at this point in time, most of what they’re focusing on is related to 3100. There are a few other items. But the significant focus is the 3100, its capabilities and the features that will really again open more doors for us with the 3100 than we even have right now so that’s the focus..

Okay.

And so is that something that you’re going to ramp to that kind of level over the next couple of quarters or you’re just going to jump right in beginning the December quarter?.

There will be a little bit of a ramp up. It involves some additional people or additional resources in that team. And as you can imagine it does take a little bit of time to find the right people, and pull those in. So they have a ramp up plan for that..

Okay. Very good. Thanks a lot..

Thank you, Jim..

All right, thanks, Jim..

Ladies and gentlemen, we have reached at the end of our question-and-answer session. At this time, I’d like to turn the call back to Mr. Hatch for closing comments..

Thanks so much, Robert. Thanks everyone for joining us today on this call to discuss the results of our second fiscal quarter of 2017. We’d like to thank our loyal customers, our employees, our shareholders, our analysts for their continued support and encouragement.

Please know that we are of course available to our shareholders at any time to discuss any questions or concerns that they you might have. Thanks again for joining us today, and have a great day. See you..

This concludes today’s teleconference. The replay for this call will be available today after 5:00 PM Eastern, and available through November 17. We thank you for your participation. You may disconnect your lines at this time..