Good day, and welcome to today's Q3 2022 earnings call. This conference is being recorded. At this time, I'd like to hand the call over to Richard Goodman. Please go ahead, sir. Thank you, operator. Good morning and welcome to P&F Industries third quarter 2022 conference call. With us today from management are Richard Horowitz, Chairman, President, and Chief Executive Officer, and Joseph Molino, Chief Operating Officer and Chief Financial Officer. Before we get started, I'd like to remind you that any forward-looking statements discussed on today's call by our management, including those related to the company's future performance and outlook, are based upon the company's historical performance, current plans, estimates, and expectations, which are subject to various risks and uncertainties and could cause the company's actual results for future periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the company. These risks, these risk factors, and uncertainties are described in today's press release under forward-looking statements, as well as in our most recent SEC filings, which you can find on the company's website, including our 2021 annual report and Form 10-K. Forward-looking statements speak only as of the date on which they are made, and the company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. I would also like to remind all participants on this call that as we have been doing for the past several conference calls, with respect to the question and answer portion of today's conference call, the length of the questions from any particular stockholder or other caller, together with management's responses, are limited to 20 minutes. Additionally, please be aware that during the question and answer session, management will only answer questions directly related to the company's results of operations and financial conditions relating to the three and nine month periods ended September 30, 2022. We must insist that you adhere to this procedure. Management will not be entertaining any questions that go beyond the scope of the call. With that, I would now like to turn the call over to Joseph Molino. Good morning, Joe. Thanks, Rich. I wanted to point out, in the table in yesterday's press release, the value for the change in operating lease liabilities for the nine-month period ended September 30, 2022, was shown incorrectly as $7,032,000. The correct amount of the change in operating lease liabilities for the nine-month period was actually $703,000. This typographical error did not affect the totals presented within the statement of cash flows. Further, this typographical error did not affect the company's September 30, 2022 consolidated balance sheets, consolidated statement of operations, and comprehensive loss or income or the consolidated statement of shareholders' equity. A corrected press release was sent out shortly before this call. I will answer any specific questions regarding this typographical error during the Q&A session. Thank you. With that, I'll hand it over to Richard. Richard? Thank you Rich, and thank you, Joe. Good morning, everybody. Thank you all for joining us this morning to discuss P&F results for the three-month period ending September 30th, 2022. On a side note, I hope you all are doing well as the country and this world are dealing with economic pricing pressures, ongoing supply chain issues, and the geopolitical crisis in Ukraine. We all pray for a peaceful end to this conflict in short order. I would like to direct your attention to the company's press release that was released earlier, which includes the company's September 30, 2022 balance sheet, statement of operations, statements of cash flows, and discussions related to the company's results for the three- and nine-month periods ending September 30, 2022, and the results compared to the same period in 2021. Further, I wish to highlight a few key factors that impacted our third quarter 2022 results. Firstly, the Jackson Gear b usiness acquisition completed during the first quarter of this year remains a significant factor to our revenue growth. Secondly, our customer and product mix at Florida Pneumatic helped improve their gross margin while negatively impacting gross margin at our Hy-Tech division. Thirdly, ongoing supply chain delays are continuing, unfortunately, not quite to the extent as before, but certainly continuing. Lastly, recent ongoing growing economic uncertainty, which we believe is causing and is likely to continue to cause a reduction in consumer spending. Finally, in order to make a better use of everyone's time here today, yet be mindful of the purpose of this conference call, I would like to remind you all of the following. Firstly, as we have done for the several previous press conference calls, it has become our standard practice. We will move directly to a question and answer session and not restate what is already in this morning's press release. Secondly, please be aware that we will only be answering questions directly related to the company's results of operations and financial condition relating to the third quarter of 2022. We must insist that you adhere to this procedure. Management will not be entertaining any questions that go beyond the scope of this call. Finally, please be mindful, as Richard Goodman mentioned, of the 20-minute time limit per caller, as previously noted, which we plan to enforce as always. To the extent shareholders or other callers with pertinent questions, excuse me, have multiple questions, please complete your portion of the Q&A session within your 20-minute limit, and then we will move on to the next question there. With that, we would be happy to answer any pertinent questions that you may have. Operator, you may open up the lines. Thank you. Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you wish to cancel your request, please press star two. Again, it is star one to ask a question. I will now take our first question from Jimmy Dillon from Dillon Management. Please go ahead. Hi, fellas. Haven't been on a call for a while, but wanna ask you a couple questions about just the capital allocation strategies at P&F. You have a decent balance sheet, and yet you're declaring special dividends after a quarter where you didn't make any money. What's the philosophy in doing a special dividend, as opposed to if you're going to do a dividend, just do a recurring dividend of a nickel per share per quarter? Joe, why don't you answer it? Sure. You know, a lot of factors go into, you know, whether the board wants to return cash to shareholders. Obviously, some of them have to do with the balance sheet, some of them have to do with our expectations on a go-forward basis, how much we borrow in relation to our availability. I think we're, in this quarter, trying to walk a balance between certainly wanting return money to shareholders, while at the same time having an eye towards a relatively uncertain economy. While we feel pretty good about our operations, you know, we're affected by many, many things that are outside of our control. While we felt comfortable with things at the moment, which is why we returned $0.05 a share, I don't think the board was quite ready to commit to a quarterly dividend as of yet. You know, we will review that every quarter. It's entirely possible that there still could be a relatively weak economy, but we may be comfortable enough with our cash flow situation to still have a quarterly, regular quarterly dividend. You know, the board will meet on that in the next quarter and make that decision. Yeah. I'll just add on to that, our focus is returning to our stockholders. That's what we're trying to do here. It's a good thing we're doing. What we call it or what some people consider it to be, not proper for whatever their reasons are, we understand. In having said all that, we're just focusing on the quarter and the facts and around the world swirling around us all, and we're just trying to be prudent about it. We still want to focus on giving back our stockholders, grow that cash flow and our balance sheet till we can afford that. Thank you. Logically, with a tremendous discount to book, a one-shot dividend doesn't do much. The ability to, if you're looking to create value for shareholders longer term, to be able to, reduce your share base at an incredible discount to tangible book, it would seem logical, as opposed to special dividends, to be buying back stock as opposed to getting no credit for a special dividend. We understand. This by the way, is the second one. We did one last quarter as well. But yes, we understand that. Okay. We will review it. Right. Jimmy, we hear you. That discussion regarding buybacks is absolutely on the table with the board. We're not ignoring that option. But as of right now, this is the road we're taking, but that is discussed every quarter at the board level, I can promise you that. Okay. As you look forward with the balance sheet that you have, you know, you're a small company with a large expenditure to be public. You've got to be a larger company, so you've got to make acquisitions. What are the areas for you that are going to be most desirable, where you get the most, the biggest bang for the buck, where there are synergies involved, and what kind of multiple are you looking to pay in these areas? Lastly, you know, it's been kind of a checkered past as to making acquisitions. How do you ensure that moving forward, the acquisitions you do are going to be accretive immediately and steadily as opposed to a little bit more in the cyclicality where sometimes good, sometimes bad? You asked a lot of questions there, and I'm not gonna be able to answer them. I'll tell you what we think. We are always actively looking at acquisitions and we continue to do that. We did one, as you know, earlier this year, the Jackson Gear one. We're looking at acquisitions that fit with our existing businesses. We're not looking to go into making things that are not up our alley, not within our sweet spot in our expertise. That's what we do. We don't look to buy things that are in the clothing business or in the office supply business. We're looking at things directly related to our businesses or ancillary businesses in our customer base. That's what we look to do. We've made a few acquisitions over the last couple of years. This is our most recent one. This was a challenging one, as most of them are, because we're not generally just picking up a company and we're generally putting them into our divisions, and that's exactly what we did here as well. Putting Jackson Gear into Hy-Tech, PTG would enhance the part, you know, the revenue and but the moving parts of moving them into manufacturing and getting these to our customers and getting these to the products, you know, idiosyncrasies that we have to manufacture, which is slightly different than what we did before, it takes time. It's taking a little bit more time than I guess we thought it would take. We do expect that by the second quarter of next year, we should be at what we consider a very good return basis for that business. We continue to look for other companies. I don't know if you wanna add anything further to that or if we've answered your question, Jimmy. If there's another part to your question, please state it again. Well, I would do the first part. You had mentioned an acceptable return. What is that level? Well, it's just we look at, you know, at least as good a return that we get on our other businesses. We would look for, I mean, I don't know if you're asking this kind of a question, but like a 15% net to the bottom line, 10%-15% kind of a number. That's what we look to. Okay. If it's not in that range, we don't go further. Joseph, would you like to add anything? To add a little bit, w e're looking for niche tool companies, areas of the tool business that we're not currently satisfying that we could add our knowledge and national and international reach. I think the acquisitions of Jiffy, the acquisitions of AIRCAT a few years ago, the acquisition of UAT in Europe a few years ago, those all fit into that category, and there are other things like that out there. That's one side of it. Then Gears we see as a very target-rich environment for us. You know, right now we've been adding to the facility we've got. As Richard said, I think unfortunately, the squeeze we got caught in here, we made one acquisition in gears just ahead of a pandemic, and then we made another one just ahead of a real squeeze in terms of labor. The supply. Shortages here in the U.S. and a dramatic increase in the cost of materials, which has slowed down that integration. By our internal analysis, and I'm just parroting what Richard said, we feel very comfortable that even with those serious headwinds, we think we're in the right market, and we now have the right capabilities across a large range of gear style to hit our stride in Q2. It's just taking a heck of a lot longer. You know, nobody foresaw some of those things going on but we still very much believe in that business. We still very much believe that it's a target-rich environment nationwide. I would be expecting you'll be seeing more there. You know, in terms of acquisitions and returns, I would add, what we'd really like to do is pay a fair multiple to the seller, but add value either in some sort of consolidation or additional reach or, you know, additional customer base so that, you know, two and two can be five. That is the goal to, on paper, pay a fair multiple but have an effective multiple that's, you know, quite a bit less. That's the idea. Excellent. Thank you, fellas. You're welcome. Thank you. As a reminder, to ask a question, please signal by pressing star one. Our next question comes from Andrew Shapiro from Lawndale Capital. Please go ahead. Yeah. Hi. Thank you. On the prior call, there was approximately $1.9 million or more than $0.50 a share in a tax refund for the 2021 ERC employee retention credit coming back to the company over the course of the next 12 months. What's your current visibility on the timing and receipt of that tax payment? I'll ask Joe. Andrew, the government does not tell us when we're getting a check. Right. We had said in this call. Okay. Andrew, I think we said on our last call we expected it by the first quarter of next year which is still what we believe is what it is. The government will send it to us when they send it to us. As you remember, I'm sure we got a check from the government last quarter, at some point, I'm not exactly sure when, that we didn't expect to be getting at that early date, and it came in earlier. It's good. It's up to the government. Okay. Well, it's a nice amount of money. Your release says that. Yeah. You're spending $1 million for CapEx in the current quarter. This is a bit more than normal. Can you discuss the benefits and your payback expectations on the cost of this CapEx? Sure. Yeah. I'll let Joe - Joe, bear with me one second. I'll let Joe answer, but let me just tell you, during the pandemic, our CapExes were dramatically lower than what is normal. I mean, I think if I remember correctly, $400,000 seems to ring a bell with me from last year or the year before, but dramatically less. Now it's getting back more to normal times, but I'll let Joe go through it. The two that we're doing right now, like the two that are nothing more from $1 million bucks are really layups for us and very, very good. I'll let Joe give you the details. Go ahead, Joe. The capital expenditures we're forecasting at the moment are related to automation and sort of creating capacity in an environment where it has been very difficult to hire employees, skilled machinists, both in Cranberry and in Punxsutawney and Reno or Carson City. What we've decided to do to supplement our efforts of hiring is getting equipment that can run unattended for hours, if not days at a time, that allows machinists to work on other machines or just frankly add additional throughput that allow us to ship more in a month. Our issue has been more about ability to get product out the door due to limited resources than orders. Orders have actually been quite solid this year all around. It's been more of a struggle because we haven't had resources internally, and the outside resources we have used to supplement are also strained. There is a lot of good things that are gonna come. You asked about a return. Our minimum return on any sort of capital expenditure is in excess of 30%, and that's probably after cutting in half the estimates. We feel very good about the things we've got on the table and expect those to generate some benefits for a good chunk of 2023. Awesome, o kay. While still focusing here on the cash, on the cash flow generation, I note that this quarter's positive EBITDA, I think is the best you've had in over two years. Most of that is not necessarily the revenue growth, it's the margin expansion. I wanted to give a little bit better color on this. First off, in Florida Pneumatic, you talk about a lot of this is due to the improvement in the sales mix being the aerospace line is starting to come back. It was in both commercial and defense-related customers. Can you expand on which programs or types in each commercial and defense that are creating the return of some of your aerospace demand? Sure, go ahead, Joe. Sure. So as you know, we've discussed Boeing is a major customer, but as we've said, many times, we have commercial and aerospace our customers throughout the U.S. and the world. While Boeing is slightly improved, you know, I'm sure you're reading the same stuff that we are, that they have not increased their monthly production levels for a while. They're certainly better than they were twelve months ago, but they're nowhere near where they were prior to the pandemic. There were recent articles saying they won't get to those numbers till 2024 or 2025. It has really been a lot of other things, other military projects that we're tied into and, you know, commercial aviation in general outside of Boeing and Airbus. Those we're locked into a lot of those programs. We've got great offerings for those programs. The Jiffy business is improved. Our industrial business is having a very good year, and those are generally our two highest margin categories. Even a little bit of a fall off in automotive and retail, we can make up for a lot with extra generation out of industrial and Jiffy. Yeah, it looks like that. Has the level of aerospace activity continued into the current quarter, or even picked up even further? Yeah, I think that's a fair statement. Yeah. I mean I don't know what you're comparing it to. Are you comparing it to last quarter, last year? We are in a better place, aerospace-wise than we've been in a, you know, very long time. While these other new initiatives have filled some of the large slack from Boeing, if you were to provide a range of where your aerospace products declined to or from the historical pre-737 grounding activity that even preceded the pandemic and where you're operating now, where would you say you are in terms of recovery? Less than half, more than half, three-quarters, or even closer in terms of volume shifts and overhead absorption where you were before the plane crashes? I would think we're about half. That'd be my guess. Okay. I mean my educated guess. Joe, do you disagree with that? Well, when you say halfway back to where we were, is that what you mean? Yeah. Yeah. Oh, I think absolutely. I think Richard's spot on on Boeing. I'd say half. I would also say that we have a stronger, larger, portfolio of non-Boeing business than before the crashes, and I'm not sure the crashes really had much to do with that. I mean, I suppose there was a temporary falloff in some aviation spending, but military has grown steadily. As I said, the other commercial areas we sell into, we had no crash. They probably were down just from air travel being down, and once that rebounded, as everybody knows, it's rebounded pretty well, that has come back. I couldn't give you a percentage, but Richard's exactly right about Boeing but everything else is higher than it was before the pandemic. Awesome. Moving on to the other part of Florida Pneumatic, where there had been some headwinds. When in the quarter did you put in place price increases at Florida Pneumatic, and was it broadly across your product lines, and were they at the beginning and the quarter reflected the full impact, or were they later in Q3? Actually, it was the price increases were initiated in Q2. Okay. They went into effect at various times, you know, into some of them going into Q3, I believe. Yeah, into Q3. They started, you know, we focused on it in Q1 and then sort of implemented them in Q2. I'm pretty sure I got the timing right on that. Joe can confirm that. At this point, we're, you know, we're pretty full. We are full blown on all those price increases. I got it right? You wanna go further, Joe? Yeah, Richard's right. We started in April, but they got layered in. We had contractual commitments in some cases and inventory that had to be run through. April through July, but I think Q3 is, I would say, almost 100% of the increases were in place. Okay. Have you been able to maintain market share or had to give up some customers? Go ahead, Richard. No, no. Go ahead. You were gonna say it. Go ahead. We didn't lose any customers. I would think, I would say this, that while our distribution channels are intact, in the automotive area I would say we gave up some units, unit sales, but I think our overall contribution is the same or if not higher. Okay. Did your price increases go through at Home Depot? To what do you attribute the decline in their reordering from its big initial stocking of your new products, which occurred in Q2? Are these products selling through and is Home Depot just adjusting the pace from the front-loaded above normal initial shipment, or is there a loss of product line or other things going on here and did they get hit with the price increase? No. Joe can expand on it, but it's not anything to do with losing any products, nothing like that. Nothing like that. It's just we've been told, and then as a vendor, we're probably the last to know all these things. You know, it's hard to believe, but we are. They're kind of saying that they're redoing their inventory there. They overstocked into some supply chain delays and stuff like that, and now they're readjusting that. That's basically what they've said to us. Joe, am I correct about? I mean I know I'm correct, but anything else you wanna add to that? You're definitely correct. There's always some sort of adjustment after a launch. I do also think that there is some softness in consumer demand, 'cause we're seeing it both in the two areas where an end user buys our tools. An auto tech buys our tools directly for themselves, and a person walking into Home Depot buys our tools directly. Both those areas are down, whereas the more industrial stuff that's being used by a corporation seems to be doing just fine. I think there's a little bit of both going on. It's a little hard to tease that out at the moment. I think we'll know more about that as we get into Q4. Sure. Let's move on to Hy-Tech, where the big bounce nicely occurred. Regarding your increased shipments to a major OEM customer, can you expand on what kind of product or use case these products are for and whether this level of activity is continuing into the current quarter? Yeah. Go ahead, Joe. The answer is yes and yes. That customer, Joe will give you the details but that customer is continuing to order at a reasonably good pace still. Go ahead, Joe. Yeah. It's a customer we've had for some number of years. You know, we've worked very closely with them. You know, I don't wanna say co-developing but we do work very closely with their engineering team on a product that's specific to them and their needs, and they've got a wide range of channels for that product, and I believe worldwide. They've got a pretty big reach, and they're doing really well with it. You know, we're happy to be along for the ride and you know continue to work with them. We're anticipating that continued relationship and we think some growth for next year and beyond. We feel really good about it. I don't know what else to say. I mean, we're in a good place there, we think. Yeah. I mean, we're - i t's a customer for quite a while now. They have a very good management team. The principal guy is very on top of his business, and he's growing dramatically and we're happy to be a vendor to him. We're doing our very best to keep him satisfied. Okay. Beyond this major customer, has the OEM engineered solution segment encountered additional success, and are there any particular areas, industries, products worthy of a call-out and elaboration? Go ahead, Joe. Yeah. I don't know. I don't think there's anything particularly new there that I can think of. I mean, we continue to satisfy niche opportunities, but I wouldn't say there's any one in particular right now. That doesn't mean that one couldn't come on. I think we've recently you know begun a deep dive into that business and are looking for maybe the best places to make bets. We might have more to say about that in future quarters but right now we're taking the opportunities as they come. Mm-hmm. Hey, Andrew, I don't mean to interrupt you, but I know you have more questions, but I'm just pointing out to you that 5 more minutes, basically. Go ahead. Please go. Yeah. Thanks. Regarding the weakness in certain industrial markets and customers at ATP, are you seeing that continue into this quarter? What are the factors that are providing pricing pressure from offshore suppliers here? Is it just a strong dollar? What steps are you taking to better compete? I don't know if I understand the question. Do you understand the question, Joe? Well you know, I think part of the issue is - t here definitely have been some cheaper imported industrial tools that are affecting that business. So that is absolutely a factor. You know, I think there's also, you know, even though the price of oil is so high, what we call the turnaround and shutdown business hasn't been nearly as robust as it would be, you know, if you rewound the clock five years, and this was the price of oil, I think you would just be seeing more activity. I think some of that could be just related to, you know, there being a move away to other sources of energy. I mean, I think oil and gas is peaked, especially oil exploration. I think that's a little bit of it as well. You know, other than that, general economic factors, I can't really think of anything else. ATP is more of an oil and gas use product? No, it's not. I mean, it's part of the business. It's part of the portfolio. You know, I always ask the question of what percentage of our business it is. It might be, you know, 20% of the business now. It was probably 45 years ago. What steps are you taking to better compete regarding the pricing pressure from offshore suppliers and the other, you know, weaknesses here? Or are you just emphasizing gears and other things instead? Yeah. We're emphasizing the other parts of the business much more because it's a dog-eat-dog business for the most part. Not that we're not doing scale, because we are, but it's just the priorities are more fruitful for us in other areas. Let's leave it that way. Okay. Then regarding the gears acquisition and the Power Transmission Group, on the last call, you thought the opportunity for Jackson Gears and its synergies was still in transition, but was a great opportunity, and that there'd be tangible progress in the quarter just completed, with most of the benefits put in place over the course of this current Q4. This quarter's release highlighted kind of under absorption of manufacturing overhead costs that would continue into next year. Was progress made during this last quarter, and is progress continuing to be made, at least? The answer is yes, progress has been made and when I say but not at the rate and the level that we expect. Jerry, you wanna go further into that? I mean, it's as I alluded to earlier, we, you know, simultaneously with this integration, we are seeing quite a bit of turnover. There's sort of a bidding war for machinists in Pennsylvania. It is, it has been a struggle to add the people we needed. We had had some people that we brought on right in front of the acquisition. We lost some of them. You know, we've got new people in there that required training. We lost some momentum. In addition, you know, a number of these parts have to be processed on the outside because we don't do everything. For example, we don't do heat treating and some grinding. Those firms that help out with that are swamped. They're taking three and four times what it would normally take to get products back to us. That doesn't mean a couple of days. It means things get delayed by almost months. It wreaks havoc with the production schedule. Lastly, since a year ago and even two years ago, the cost of metal is dramatically higher than it was, and that has hurt us a little bit. Having said all that, we have - We're running out of time. A nice order book. You know, as I said, by Q2, we think we're gonna be in a much better place. I'll ask one more question, if you grant me one more question here. It's on the same topic. Sure. Go ahead. Sure. Can you expand on the steps and the timing to then address these issues, and more importantly, kind of what is the margin pickup or the unabsorbed cost amount to be remediated here? Is it meaningful that we would, you know, we'd see it when you report another quarter when this is behind us? Go ahead, Joe. I'm feeling fairly confident that unless there's a dramatic issue with the customer base or demand in Q2 on a run rate basis, you will see a much stronger PTG than you saw in 2023. As I said, we've got some capital expenditures that are gonna address some of the strains on the staff. I think by then we'll probably sort it out the customer base a little bit more. You know, we had a big dump of new customers from the acquisition. I think some of them are much more attractive than others. So there's gonna be a little bit of culling of the herd there and sticking with customers where we're high, you know, have a greater degree of confidence in generating profits. You meant 2021 as opposed to 2023. I'm sorry, Rich? You referred to 2023. You meant 2021. That's all. Okay. Hopefully that answers your question. Yeah. Yeah. I won't ask a question Andrew, but I'll just tell you that the change that was made at the top of Hy-Tech, so we're very satisfied with that, with our leadership. He's doing a remarkably good job for us. We're very happy with him. Okay. Great. Thank you. Thank you for your time, Andrew, and your interest. Yeah. Thank you. Ladies and gentlemen, there are currently no further questions in the queue. As a final reminder, if you still want to ask a question. Thank you all. Thank you all so much for your time today. We wish you and your families a good holiday season and we look forward to speaking to you with our year-end results in the early part of next year, in the first quarter. Thank you all and stay well and safe. Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.