Profire Energy's (PFIE) CEO Brenton Hatch on Q4 2016 Results - Earnings Call Transcript

| About: Profire Energy, (PFIE)

Profire Energy, Inc. (NASDAQ:PFIE)

Q4 2016 Earnings Conference Call

June 14, 2016 01:00 PM ET

Executives

Brenton Hatch - President and Chief Executive Officer

Ryan Oviatt - Chief Financial Officer

Cameron Tidball - VP, Sales & Marketing

Analysts

William Bremer - Maxim group

Rob Brown - Lake Street Capital Markets

Joseph Reagor - ROTH Capital Partners

Mark Lanier - Pegasus Capital

Operator

Good afternoon, everyone and thank you for participating in today's conference call to discuss Profire Energy's Fiscal Year Ended March 31, 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. 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 of its 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 unnecessary expenses in future periods, the company's ability to execute on its capital allocation plan as outlined, the company's ability to effectively manage cost and create a cost structure with greater leverage in future periods, the company's intent to repurchase up to $2 million worth of the company’s common stock, and the company’s ability to employ capital to generate meaningful returns, and the company’s intention to have its CTO bring products to new markets and more aggressively pursue potential M&A activity, ultimately driving long-term value for the company.

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 June 21, 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's 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. Please go ahead.

Brenton Hatch

Well, thank you very much. Good day everyone and thanks for joining us for our fiscal 2016 conference call. I remember this same time last year preparing for this call where we once again had record revenues and though oil prices were falling, we didn’t foresee the severity of the industry turbulence we experienced in fiscal 2016. Frankly as you all know, it’s been a tough year for Profire as with all other companies in our industry. Customers just haven't had the budgets to spend and each sale has been difficult to capture.

However, when we look at the big picture, we see that our performance relative to the industry and our peers is evidence of management's ability to steer the company in the right direction and position ourselves to manage the storm well. Prior to this year, the company experienced incredible growth, which we believe we can recapture over time. We’re excited about what is ahead for Profire. While a difficult year financially, this has still been a year of progress for us. We were slightly better than breakeven, which we are not satisfied with. However, we did add a significant amount of cash to the bank.

We have a substantial cash reserve and we are focused on how to employ that capital to protect the company and deliver long-term value to shareholders. Additionally, we completed and announced the PF3100, our new combustion controller, which we believe will add significant value in the coming years for the company. We have already seen its impact for customers, though on a small-scale, and are confident we can expand the capabilities of this product enabling us to branch out to other industries.

During the year, we also hired a new CFO who has helped the company make many positive changes, including impressive cost reductions and cost management during these challenging times. This year, we also expanded our customer base significantly and though the dollar value of orders from customers has decreased, the number of customers we worked with is at an all-time high. We are confident that this will serve us very well, as budgets loosen up and the economics makes sense for those E&Ps to begin completing wells again. We hope you sense the vision we have for the coming years at Profire.

We have gone to great lengths to reduce overall cost at Profire and we feel that we have been very effective in these efforts. Our management team has been forced to make many difficult decisions involving company personnel, required job functions, areas to scale back and projects to put on hold. Our employees have been resilient and because of them, we believe that we can bounce back quickly as the market improves.

Profire and its employees have made concerted efforts to cut back unnecessary travel, reduce employee meal, decrease the number off and dollar spent on third party professional service firms we engage with and much more. We have wonderful employees who have been critical to our historical success and who will be even more influential as we look to grow again.

All that said, we are still in the midst of a very difficult industry environment, which is having and we anticipate we will continue to have, a significant impact on the company in the near future. Properly navigating this environment continues to be a top priority of management, but we will not allow the setback to derail us from our long-term vision of what Profire can be. We will continue to focus on the areas of the business. We can control such as making internal process improvements, strengthening our treasury management, bolstering our internal controls, and building relationships with both customers and vendors, which we believe will fortify the company in the long run.

Within the past few weeks we have made some significant announcements, specifically the Board authorization to conduct a stock repurchase program and the shift in roles for one of founders Harold Albert, who has transitioned from the COO role to the CTO role. We believe that this program and role change will be beneficial for the company and will help drive the long-term growth for Profire and deliver value to its shareholders. I will speak to both of these items in more detail a little bit later on the call.

Now, while we know that there will be some turbulence in the industry for the short term, we are confident that we can manage through it. Low oil prices combined with a lack of drilling and well completions are a real issue for our ability to capture revenue, especially in the most recent quarters. In spite of the difficulties, we are working towards building the company to be more commodity price resilient, while remaining focused on our core competencies.

We believe we will look back on this current phase as a time for streamlining, improvement, and creativity. We are excited about all we have accomplished and believe we can build upon our success in the future.

With that I want to turn the call over to Ryan Oviatt, our CFO to discuss the financial results of the year. Ryan.

Ryan Oviatt

Thanks Brent. Yesterday after the market closed, we filed our Form 10-K with the SEC and summarized the results of the periods ended March 31, 2016 in a press release. Both of these are available on our investor section of our website. Overall, this has been a solid year for Profire and though the industry is facing some difficult headwinds, the company's position to not only endure the downturn, but is seeking opportunity to add value during the industry correction. With that said, let's get into the financials and start with the income statement.

For the fiscal year ended March 31, 2016, our total revenues decreased 47%, compared to the prior fiscal year to $27.1 million. Decreased production and capital investment activity in the oil and gas industry was the primary factor in our decreased sales. We will continue to focus on developing new products diversifying into new markets and industries and enhancing our marketing and sales efforts with key customers and prospects.

We anticipate as we do so, sales can stabilize on the short term and we will be able to increase revenues and revenue stability over the long term. Our gross profit decreased to $13.6 million or 50% of total revenues, as compared to $27.2 million or 53% of total revenues in the prior year. The biggest driver's leading to the decrease in our gross profit percentage year-over-year where first, the increased allocation of overhead and depreciation to cost of goods sold, derived from the facility and fixed assets additions made during the prior year.

Second, an increase in service activity as a percentage of total revenues and finally a shift in product mix. In the short-term, we may experience a continued deleveraging effect derived from our lower revenue level, which we anticipate will remain challenged until later this year. Gross margin may fluctuate period to period, due to a number of factors, including product mix, revenue level, service margin, and others. We will continue working with our suppliers to reduce the cost of products we sell in order to deliver further value to our customers and shareholders.

Total operating expenses decreased to $13.7 million or 51% of total revenues from $18.7 million or 37% of total revenues in the prior year. The company has been successful in its expense reduction measures and will continue to work towards maximizing efficiency and eliminating unnecessary cost wherever possible. We hope that each of you have seen over the past year how committed the management team is to this cost reduction effort.

As we make decisions to implement the long term goals of the company, we anticipate making strategic investments for the long term benefit of Profire. When compared with last year, operating expenses for general and administrative decreased 25%, R&D decreased 51%, and depreciation decreased 7%. 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 $200,000. The majority of which was attributable to the effective exchange rates on intercompany transactions. 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 year as a percentage of net income before taxes was 79%, compared to 33% in fiscal 2015. The year-over-year increase is primarily attributable to certain deferred tax items magnified by lower income before tax levels. Net income was approximately $35,000 or zero cents per diluted share, compared to net income of $5.7 million or $0.11 per diluted share in the prior year. We continue to maintain a strong balance sheet with zero debt.

Cash and cash equivalents totaled $21.3 million at March 31, 2016, as compared to $14.1 million a year ago. We are pleased with the company’s ability to continue to generate cash from our operating activities, which will continue to be a focus of the company in future periods. As you probably noticed, and as Brent noted earlier, Profire received authorization from the board to conduct a stock repurchase program of up to $2 million worth of company’s stock.

We believe this will be much beneficial to the company and its shareholders especially that can be accomplished with operational cash flow without using much of the current cash on the balance sheet. However, this will be dictated by industry conditions over the next 12 months.

We have experienced working capital improvements as both the accounts receivable and inventory balances are down from prior year end and we remain focused on bringing the inventory balance down even further over time. We will continue to strategically allocate capital in the preservation of cash, potential investments in acquiring adjacent technologies, conducting our stock repurchase program and other opportunities. We believe this plan will ultimately drive long term value for Profire and our shareholders.

Before I turn it back to Brent, I want to touch on a couple of final items related to expected expenses in fiscal year 2017. To shed a little more light on our cost strategy, we believe that we are at a fairly stable expense run rate and have been for the month or so as we look to the first quarter of fiscal 2017, we should have a clear picture of what expense levels will be for the next couple of periods.

We are not at [indiscernible], but we do believe we are at an expense level commensurate to what we anticipate will be a better second half of fiscal 2017. If for some reason customer purchasing does not improve in the second half of fiscal 2017, we will have to look at further cost reduction.

Additionally, we believe the cost and company’s structure we have now is fairly scalable. As revenues begin to improve, which we believe they will in the second half of fiscal 2017, we anticipate being able to observe significantly higher revenues without needing to build out our cost base accordingly. The internal process improvements we’ve made and the people we have kept in key roles will help to deliver much of the scalability. We recognize this is a difficult environment, but we are optimistic about the future of the company even in the short term given the recent commodity price increase we have seen.

We have a vision of what Profire can become and will continue to work to build the company and strategically position as to capture opportunities within oil and gas, and other industries in the coming quarters and years. It’s still going to be tough for a little while, but we are confident that the decisions we have made over the past year have positioned the company to capture future opportunities and deliver long term shareholder value.

With that, thanks. And I’ll send it back to you Brent.

Brenton Hatch

Thank you, Ryan. As Ryan highlighted, we currently have significant cash reserves of $21.3 million, which provides us with immense opportunities. As noted on previous calls, in addition to cash preservation and investing in our current product offerings and support, we are exploring other investments that could drive long term shareholder value, including potential acquisitions of adjacent technologies and companies, improving treasury management and other investments.

We recently announced the approval of our stock repurchase plan, which allows the company to repurchase up to $2 million worth of company’s stock over the next 12 months. We believe this buyback underscores our confidence in the strength of our balance sheet, our ability to create value for our shareholders, and the future prospects of the company. At recent market price levels, we believe our stock represents an excellent opportunity to buy at a significant discount and is a highly attractive investment.

Additionally, as we have followed the correlation between our stock price and commodity prices over the past several months, we recognize the increased spread between the two, which we believe indicates a positive buying opportunity. We will continue to seek and evaluate additional opportunities to increase shareholder value and employ our capital to generate meaningful returns.

Additionally, we will continue to consider and make internal investments in our new products as we have communicated. These products will contribute significantly to the company’s future growth even in a down industry. We will carry on with the 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.

We're excited about the initial sales and installations we have completed, and the possibilities to leverage the 3100 platform and future modules to diversify the industries we serve. We believe this product will continue avenues for growth in future periods as we dial in its capabilities to function in other industrial applications. We are 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 atmospheric burners and possibly enter the market as another option to the more costly programmable logic controllers or PLCs.

As noted, a big reason for the change in Harold’s role is to focus on and cultivate these new market possibilities for the company. Harold has tremendous technical knowledge and is a wizard when it comes to understanding the complexities of the applications of our product. We are excited for him to focus not only on bringing our products to these new markets, but also more aggressively pursue potential M&A activity that will drive long term value for the company.

Recognizing that this past fiscal year was a difficult environment and that we managed a breakeven result, we think that it is probably a reasonable expectation for this fiscal year though we will work tirelessly to do better than that. The industry is tough right now as indicated by our fourth quarter. From a revenue perspective, our Q4 was probably a fair representation of where we could be for the first couple of quarters of fiscal year 2017. One of the biggest challenges that we face is the lack of visibility and the sales in the short term. Because of this, cash preservation will be critical and we do not foresee many capital expenditures by the company during the year.

So, while we anticipate the long term opportunity to be significant and are hopeful that the latter quarters of this fiscal year will present a better sales environment in the beginning quarters. We expect the first two quarters of fiscal 2017 will be challenging for the company. We are optimistic that by the end of this calendar year, we will begin to see the benefits of the recent commodity price increases assuming they remain relatively stable.

Over the past year, there have been many wells that have been drilled and not completed due to economic factors as the economics in the basin begin to make sense again for these E&Ps to complete wells, Profire will have many opportunities to provide the market with our solutions. We are hearing from a few OEMs we worked with that this spring loading effect with the drilled and uncompleted wells could lead to a significant budget spend by the E&Ps in the latter half of the year.

We remain confident about the long term opportunities of the company and our ability to strategically direct the company in the future. Again our history as a company, is primarily one of significant gross and net margins, substantial growth, and of course no debt. We feel we can manage the coming quarters to ensure that such that remains the case in the long term.

Now with that I would like to open the call up to questions. Operator, would you please provide the appropriate instructions, so that we can get the Q&A started.

Question-and-Answer Session

Operator

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

Brenton Hatch

Hi Bill.

William Bremer

Hi Brent, Harold, Cameron, Ryan and Tanner. I think I got everybody right.

Brenton Hatch

There you go. Good job.

William Bremer

All right. Nice blocking and tackling, good cash management on the year, let's just start off right there, can we get a little more granular in your revenues, can you give us a sense on how much of the revenue came from your BMS systems, how is the chemical, the CMS coming along, maybe give us a sense of how many pilots you are working on there and help us break down the product oriented revenue a little bit here?

Brenton Hatch

We will have Ryan talk to that for a moment and then bring in Cameron on some of the sales, present sales on CMS et cetera. So, maybe Ryan you could start with that.

Ryan Oviatt

Yes certainly. Bill, so, consistent with prior quarters, obviously the BMS side of the business continues to be the more significant contributor to our revenues, we’re still working to grow the CMS product and even the 3100 as part of the BMS revenues as well. Specifically, the CMS continues to be less than 5% of total revenues at this point of time, though for our fourth quarter we did have the best quarter for CMS that we’ve had thus far, it’s still pretty small. We had 14 systems that where, that we are able to sell up and get out to several different customers, which is better than what we’ve had in any prior quarter related to CMS. Overall, BMS remains our bread and butter and it is still what’s driving most of our value there. I will turn it over to Cam, and he can probably give a little bit more color as to what we are seeing from our customers overall in relation to these products.

Cameron Tidball

Yes, thank you Ryan. I guess just really it echoes BMS and particularly the 2100 still is the flagship product and it is still what is known and specified from our customers and again highly dependent on well completions and retrofits et cetera. CMS still a very small part of our portfolio, still lots of great interest from customers, but still the fact that hey this isn't really a safety product and we don't have budgets. So maybe later is kind of the consensus, but still very easy meeting for Profire to get because of the recognized savings that we've been able to achieve on some prominent case studies throughout the United States and even Canada.

So we do expect we will see some more interest with the commodity price even tipping around that $50, even though a lot of our areas don't enjoy $50 barrel of oil. There still is a renewed interest and some renewed optimism from our customers.

William Bremer

Gentlemen, your fourth quarter was definitely on the lower end of what I was forecasting. Do you still feel as though that your market share that you once had, still feel as though you had that type of high percentage market share or have your competitors, your Platinum, ACL, Surefire, have they picked up, what are you seeing in the field right now?

Brenton Hatch

Thanks Bill. Actually, we have heard very little from them. We are quite confident that if anything we've increased our market share in that regard; this has been a pretty tough time for everybody and in particular for smaller companies that if they aren’t funded as well perhaps as they could be, if they are carrying some debt, it is quiet a burden and so we feel like if anything there is a strengthening in our position.

William Bremer

My last question deals with the overall regulatory environment, okay, the State of Colorado, Utah, even North Dakota all have regulatory mandates, many of them have been passed so can you give us a sense of what your sales individuals that are targeting those areas, what are they hearing from the customers there?

Brenton Hatch

Cam, do you want to talk to that?

Cameron Tidball

Yes, you bet. For the most part Colorado and Utah, a lot of the sentiment has been catch me if you can and there really hasn't been any enforcement. We have not heard of any penalties being levied or even any threat of it. That being said, for example Colorado, the fact that we, I mean our product represents the four main producers there, which generate a majority of the production, that’s not the only reason there; we are doing the retrofits when they were - and so for the most part, I would say that regulatory just like in Canada where it was a strong push has been relaxed if anything, there has been no evidence of anybody placing a fine that we have seen so far.

Brenton Hatch

If I can just finish that one. It is pretty hard for some of these companies who rely on revenues from the oil companies to get too heavy-handed in the policing both in the states and in provinces of Canada and so I think they are in a bit of a quandary as to what they should do. They have the policies in, but as Cam said, haven't really been active in policing those things. Thank you, Bill.

William Bremer

Thank you.

Operator

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

Brenton Hatch

Mr. Brown, how are you?

Ryan Oviatt

Hello Rob.

Rob Brown

Great. Great thanks, good afternoon. Just wanted to get a little more commentary on the visibility. Have you - oil prices have improved, have you seen some greater interest and sort of what’s the trend in visibility I guess?

Brenton Hatch

Great question. We have, Cam is with us, he is really in close touch with the field and some of the responses and he certainly has given me some good answers to those questions so again Cam, we will defer to you for a moment.

Cameron Tidball

You bet. We still - obviously a lot of our contacts in the head office, the engineering realms have been let go over the last year sadly. We still hear that this could continue for some producers. However, we do feel that that has slowed to a degree. The rise in commodity price has definitely increased our quoting activity, our estimating activity. It’s definitely increased the excitement from our manufacturers who put together production equipment. The fact is though there is a lot of those bidding on the same jobs because the producers now have their, kind of have their way where they can have the pick of what they want to choose and they can really chop price. But overall, although we still have some people saying, hey I am the guy this month, I might not be next month, from a field perspective, I think we’re seeing a lot more willingness to talk, saying hey, this could be coming sooner instead of we don't know when this could be coming. So that sentiment is still very, I’d say it is very optimistic right now and very positive.

Rob Brown

Okay, good, that helps quite a bit. And then on the 3100 product, I mean you talked about kind of generally the - that opens up your markets, but could you give a, maybe a sense in terms of what size market, does it double the market opportunity or what’s the market opportunity sort of impact of the 3100.

Brenton Hatch

Again Mr. Marketing man, Mr. Tidball, can you address that?

Cameron Tidball

Definitely can. As far as putting a number to it, I would be doing this service high or low, I don’t know, but what I can tell you just even from last week being at the Global Petroleum Show, the amount of customers or potential customers that I was able to reach out to now because we are either close to being in their space or in their space of these companies who build big process heaters, we are there. We are very close and that market obviously there is not thousands upon thousands of process heaters being put out every year. However, there are many that need retrofitting there, a lot of old technology out there. We’ve already been involved with some of that and there is also just the - when they do kick around, they are looking for new and better technology, which the 3100 from all accounts and from early feedback from these potential customers is very positive. So, I can’t put a number to it, it’s tough to say. I would say it’s larger than ours from a total dollar value, but that remains to be seen.

Ryan Oviatt

On your last comment too – when we use the 3100 on projects, typically it is not a $3,000, $4,000, $5,000 per unit yet we can do jobs up into the hundreds of thousands with this and so we don’t have to do as many jobs in order to bring in significant revenue. So that again is one of the significant advantages here.

Rob Brown

Okay, that’s great color. Thank you. I will turn it around.

Brenton Hatch

Thanks Rob.

Operator

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

Brenton Hatch

Hi, Joe.

Joseph Reagor

Hi guys, thanks for taking the questions. So, I guess first thing, it didn’t seem like you guys were giving actual guidance for 2017 because of visibility beyond a quarter or two is just way too cloudy to make it a vision. But looking at those first two quarters of your fiscal year, it sounds like you are expecting it to be around where Q4 was, but not quite as that because the oil prices ticked up. Is that fair?

Brenton Hatch

Ryan?

Ryan Oviatt

Great question, Joe and you’re right, we have elected not to provide quantitative guidance necessarily but provide some more qualitative indicators and some of those you just commented on and picked up on, but that’s ultimately what we are seeing. We are very happy to see that the oil price has ticked up from the low in February of 26 and is now floating in the $50 range. As Cam mentioned, that’s very positive for our customer so we are starting to see an uptick there, but the volatility that we’ve been through so far this year has really made our customers by hesitant and the timing of their willingness to spend is just very difficult for us to gauge. Therefore, from our perspective, we do expect that we may have still a couple of rough quarters this year. We have demonstrated some significant cost reductions year-over-year and in our Q4 costs were down significantly. Some of those reductions were implemented in the last month of Q4, so we expect that Q1 will be even a little bit better than that and we’ve continued on in Q1 with a few more additional cost cutting effort. So, your assumption is probably a reasonable one.

Joseph Reagor

Okay, that’s very helpful. And then you guys mentioned the possibilities of M&A, could you I guess maybe elaborate further on type of transaction, magnitude of it, whether you adjust to shares and cash, would you take on debt, a little bit more detail there so – any kind of framework of what might be possible?

Brenton Hatch

Let me deal with your last question first, where we take on debt, wholly unlikely we have a history of being debt free. We like to maintain that, Joe. But we do have a significant amount of cash in the bank right now and available to us if we feel inclined to make a move in the M&A arena. We are watching carefully to look for companies that have significant value, but that are underpriced because of the same issues that we’re dealing with. The commodity issues, the price issues. We’re not desperate to go out and make deals, but we are watching carefully. We would like to stay in the same related space, we don’t want to get too far from where we are in that regard, but there are lots of opportunities in other industries using combustion control in agriculture, is but one of them, pulp and paper; those kinds – there were boiler industry and so on. And so we are watching carefully for opportunities to step into other industries, perhaps through an acquisition of a company who is presently in that knows the industry well and can help us make a more seamless transition. We are very cautious as well about only making a deal when we feel that the cultural fit is right. This isn’t just economics, but we don’t want to get ourselves in over our heads either culturally or financially by taking on some company that has too much data, especially when we don’t know how long this is going to continue, this troublesome environment. So, to answer your question, we are definitely looking, but we are not out there desperately making deals just to try to get in before the market moves up.

Joseph Reagor

Okay, fair enough and then one final one if I could. On the customer front, you know, you guys talked about continuing to grow your customer base, can you give us a little bit more of an explanation of exactly how you guys define one as a current customer, you know it’s just someone who has purchased in the last year or someone you have had master sales agreement with or exactly what the context is there?

Brenton Hatch

Ryan.

Ryan Oviatt

Yeah, great question Joe. So, the way we defined it is, is just someone who has purchased within the last 12 months. So, in the press release associated with our filings and announcements we mentioned that we had 300 plus customers in fiscal 2016 that has purchased. The numbers close to 350 is really what we’ve got there and if you compare that to what we had a year ago, it was around 220 or thereabout. So, we’ve had demonstrated significant growth in line of 12 months in that customer base. The quantity and the other amounts that each of the customers is purchasing has unfortunately been down quite significantly, but we are quite proud that we are servicing many more customers today than we were 12 months ago.

Joseph Reagor

Okay, that’s very helpful and sounds good.

Brenton Hatch

The advantage of that of course Joe is that having all those new customers is that when things do turn around and they start to purchase significant numbers the volume of sales could go up really significantly. So, we are quite excited about that. Thank you, Joe for calling.

Joseph Reagor

Thank you guys.

Ryan Oviatt

Thanks Joe.

Operator

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

Mark Lanier

Congratulations on your accomplishment in a tough period of 2016 and actually the questions I had have been covered, so I don’t need to ask another one, but I will put in my $0.02 [ph] and say how pleased I am that you have authorized this stock repurchase. It seems a very intelligent use of some of your capital and I wish you all luck going forward.

Brenton Hatch

Thanks so much Mark. We appreciate you being an investor.

Operator

We have a follow-up question from William Bremer of Maxim Group. Please go ahead.

Brenton Hatch

Hi Bill.

William Bremer

Hi. Just wanted to get a sense on, if you could provide sort of a mix of your sales that occurred directly from your personnel versus through your distribution channel and whether or not on your gross margins on the product have held on quite well considering the fall out? And I was wondering are you still going to be able to maintain that in the first half of 2017?

Brenton Hatch

Ryan, you want to answer that?

Ryan Oviatt

Yeah, I will speak specifically to the gross margin side a little bit, but then I think Cam could provide some color on probably both of your questions there. It has definitely been challenging for us in this last quarter and so far this year. From a margin perspective, we’ve had customers reaching out to us asking for significant discounts to some degree and we’ve managed those situations pretty well in each individual circumstance. In some cases we have taken a little bit of a margin reduction, but it was also in exchange for some additional purchasing from those customers. So, we are able to so far maintain that margin. We expect that we will probably continue to get some pressure there, but for the products that we sell we have some that have quite high margins and we were able to do a little bit of negotiating on those and others where it is more of a resale situation, we have been holding pretty steady on those as well, but Cam you have been involved in some of these discussions with our customers maybe you can comment there.

Cameron Tidball

Yes, you bet. Everything you said there is correct Ryan. The pressure is still there. However, I think we have weathered a lot of it with securing more volume if we did a deal or looking for other opportunities to save them money on other products they might be buying where we might just be able to take over that part or piece for them. With respect to the question on, kind of, I guess our customer mix, Profire is traditionally enjoyed, I will say it having our KK needing at two where we sell direct to customers and we do some service direct, as well as we would sell through a lot of resellers to areas where we didn’t have a service team or to manufacturers. Now, with the downturn, obviously we’ve seen a lot of instrumentation electrical companies who were in the burner game, as it where move out of it because they just - they have to focus on their core plus they drastically reduce staff. We've seen OEMs, some close their doors, some merge and some focus on other types of production equipment that don't require the use of a burner management system. So, to comment on that right now we are selling direct-to-end users more than we ever have as a percentage of sales orders, of course not dollar volume. However that being said, the positive news again is just our customers account has gone up, the number of 350 is a low number because some of our resellers who are still in the game, they obviously serve us a lot more customers than just one or two. So, as far as a percentage, we are going direct to lot more than we had to in the past because our sales people are having to get out and get that maintenance budget that still there is some of that instead of the CapEx where we get on the new production equipment.

William Bremer

Okay great. And one for you Ryan, has these stock buybacks started as of yet?

Ryan Oviatt

No. The actual purchasing has not started. We are still working with brokers and putting our agreements and contracts in place and dealing with our current block out period that we've been under. We haven't actually put that in place just yet.

William Bremer

But it is for fiscal 2017 right, that is the timeline?

Ryan Oviatt

Correct. We want to get that in place as quickly as possible. We think right now presents a great buying opportunity and value for us as a company and shareholders, so we are committed to getting that in place very quickly.

William Bremer

Okay great. Thank you.

Brenton Hatch

Thanks Bill.

Ryan Oviatt

Thanks Bill.

Operator

This concludes the time allocated for the question-and-answer session. I would like to turn the conference back over to Mr. Brenton Hatch for any closing remarks.

Brenton Hatch

Thank you very much. Thanks everyone for joining us today on our fiscal 2016 conference call. We would like to thank our loyal customers, our employees, and especially you, our shareholders for your continued support and encouragement. Please note that we are of course available anytime to our shareholders to discuss questions or concerns you might have if you like to have to contact us directly. Thank you and have a great day everyone.

Operator

Again, I would like to remind everyone that this call will be available for replay through June 21 starting later this evening via the link provided in today's press release and in the investor relations section of the company's website. Thank you, ladies and gentlemen for joining us on today's call. You may now disconnect.

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