P&F Industries Q2 earnings call. My name is George, I'll be your coordinator for today's event. Please note that this conference is being recorded. During the call, your lines will be listen only mode. However, you will have the opportunity to ask questions towards the end of the presentation, and this can be done by pressing star one on your telephone keypad at any time to register for the questions. If you require assistance at any point, please press star zero and you will be connected to an operator. I'd like to hand the call over to your host today, Mr. Richard Goodman, to begin today's conference. Please go ahead, sir. Thank you, operator. Good morning. Welcome to P&F Industries second quarter 2023 conference call. With us today from management are Richard Horowitz, Chairman, President, and CEO, and Joseph Molino, Chief Operating Officer and Chief Financial Officer. Before we get started, I wish 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 and 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, excuse me, 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 2022 annual report on Form 10-K and our quarterly reports on Form 10-Q. 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 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 second quarter 2023 results of operations and financial condition, as disclosed in a press release published earlier today. We must insist that you adhere to this procedure. Management will not be entertaining any questions that go beyond the scope of this call. With that, I would now like to turn the call over to Richard Horowitz. Good morning, Richard. Good morning, Rich. Thank you. Good morning, everybody. Thank you all for joining us this morning to discuss P&F results for the 3 and 6-month periods ending June 30, 2023. I hope all of you are doing well as our country and the world continues to face ongoing economic pressures, as well as the ongoing crisis in Ukraine and general global unrest. We pray for a rapid and peaceful end to all these conflicts. I would like to direct your attention to the company's press release that was released earlier today, which includes the company's June 30, 2023 balance sheet, statement of operation, statements of cash flows, and a discussion related to the company's results for the three and six month periods ending June 30 this year, how these results compare to the same periods in 2022. I wish to highlight a few, a few key factors in our release. Our consolidated revenue declined 9.2%. However, and more importantly, our gross margin of Florida Pneumatic and Hy-Tech improved 3.9% and 8.1% respectively. Total operating expenses declined 2%, and rising interest rates were, of course, the primary cause for the increase in interest expense. Finally, in order to make use of everyone's time and yet be mindful of the purpose of this conference call, I would like to remind you all the following. I apologize for being repetitive to Rich Goodman. First, as our, 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 second quarter of this year, results of operations and financial condition. We must insist you adhere to this procedure. Finally, please be mindful of the 20-minute time limit, as previously noted, which we plan to enforce. To the extent shareholders or other callers with pertinent questions with multiple questions, please complete your portion of the Q&A within the 20-minute time limit, and then we will move on to the next question there. With that, we would be happy to answer pertinent questions that you all may have. Operator, you can open up the lines. Thank you. Thank you. Thank you, Mr. Horowitz. Ladies and gentlemen, once again, if you have any questions, please press star one and just make sure your mute function is not activated on your phone, so now you're able to switch your equipment. Our first question today is from Andrew Shapiro, colleague from Lawndale Capital Management. Please go ahead. Hi, good morning. Can you hear me? Good morning, Andrew. Yeah. Okay. First, regarding Florida Pneumatic, if I could. Boeing's large 787 Dreamliner inventory now has begun delivering. Production is expected to begin ramping in the coming months. Are you seeing an uptick in the demand for 787 tools? Then, I, of course, I got to follow up on the 737. Joe, you can answer that question. Yeah, we're on that program. It is a fraction of the 737 program. Right. Obviously, any uptick in production is helpful. As you, as you know, you know, we're not selling tools per plane, so an uptick... Nope in production doesn't mean we get an order next week. But yeah, that's, it's a positive development, no doubt. As I said, we're on that program. Right. Then the 737 MAX, their production is now predicted by Boeing to really ramp up, and they're going to tool up a new line up in Everett. How far in advance do they typically order and, and, you know, make demands for that, since that ramp up is gonna be next year for the new production line and the hiring that they're doing? I believe they said they wanna be up to 38 planes a month by the end of this year. Yeah, we really don't have a tracking to know how far ahead of time they order the tools or if they order it ahead of time at all. Secondly, their numbers are. We see the same numbers you do, and we don't know anything more than you do in that regard. Mm-hmm. However, when they claimed they were doing 22 planes a month, which goes back maybe six months, I guess, or something along those lines, they were, according to our, our people who were in Boeing's factory pretty much every day, it was nowhere close to that number. I don't, you know, I don't know what's the true number or what it is, but certainly I think the takeaway is it'll be much better going forward for the next two years. That's the big takeaway, whatever that is. Your level of kind of business with them right now is about kind of what%, compared to pre-pandemic and, frankly, compared to when they slowed the production line down when the 737 MAX got initially grounded, which was actually before the pandemic? Well, you were at around 50% or so before. Is it the same or you ticked up a little bit? I'd say we're probably 60% or so of pre-pandemic levels. I wouldn't even say pre-pandemic, it's pre-crash, really. The crash was really more the issue for them, not the pandemic. Yeah. Right. Okay, so that's a, a decent amount of upswing, but your aerospace division seems to be, subdivision of Florida Pneumatic seems to be doing, pretty well. On the last call, you discussed a new suite of cordless installation tools for aerospace from Jiffy that you were working on, one of which you said in the last call, you were taking orders in Europe, including from Airbus, and you and the customers were very excited about this. It's been another three months. Did those tools get delivered, and how did the initial tests work out? When do you expect follow-on orders of that initial tool? You also said you have a second or more tools in this line that would be ready for testing in the field, I think in the present third quarter we're in. What's the status of that as well? Okay. We are shipping. We are taking orders and shipping the first tool. It's ramping up. It's no one particular customer. We've been taking orders for that tool worldwide. Mm-hmm. It's shipping. Just to be clear, we're past the testing phase. These are shipments for, to go right to the lines to produce jets. The testing phase is over for that tool. Great. The second tool is in test. Sometimes they're internal tests, sometimes we send a few to some customers for to work. That's still in process, but I think that's probably not really going to be shipping. We're not gonna be taking production orders, probably till closer to the end of the year, the beginning of 2024, for the second version. Andrew, I'll just, I'll take, just one other thing I'll just add, comment on your comment. The, our aerospace, business is, doing extremely well. Extremely well. Mm-hmm. Very, very good backlog, very good prospects. Quoting is very high. It's a, it's really a very. We're very, very optimistic, and we don't generally talk about things like this on these calls, but we're very, very optimistic about. Yeah, no, you, you generally don't, so I'm, I'm pleased to hear that you're even excited, so that's good. Yeah. It, it, especially with Boeing having, you know, got another, we'll call it 40%, you know, air pocket. Yeah to get back up to, and we, and we know they will, down the road. I'll just give you one other piece of color, then you can move on. I don't want to waste your time with this, but our percentage of business with Boeing is down, even though their business is up, if you understand what I'm saying. They're a slightly smaller percentage of our overall aerospace business, I believe. Pretty sure. Well, that, that would, that would make sense simply because their business level is down with you and you hadn't... You, you were trying to get into Airbus before the pandemic, and now you've gotten into them. That just makes a lot of sense that you... Yeah filled the hole with other, with other aerospace customers. Yes. When Boeing returns, your aerospace division presumes, your aerospace subsegment presumably will be setting records for, you know, the company. Home Depot, going on in Florida Pneumatic, your release mentions that retail customer, it's Home Depot, reduced the number of SKUs of their, the Husky line, a pneumatic tool line you manufacture for them. What happens to the inventory you had or still have of these no longer stocked units? At risk. Will the inventory levels come down further and cash be received? Okay, inventory has come down. I don't have in front of me, call it $3 million, mostly related to The Home Depot. There are a couple of things going on. I think it's something like 6 SKUs were dropped approximately since last year. More importantly, we were stocking up pretty heavily throughout all of last year and into the beginning of this year because of the delays we were experiencing in getting product here from Asia. Those delays have come down, and we've been able to get away with keeping less safety stock, and I think we're pretty comfortable with where the stocking levels are now, and that cash is, is pretty much in the door at this point. Mm-hmm. But when they discontinue SKUs and you are stocking units, what happens? They're obligated, and they'll take those out, and then, you know, then those unit, you know, those- Yeah. SKUs are discontinued. Yeah. Yeah, they take, they take all the old merchandise. Yeah, we run that out. We don't- We don't have. With any. Yeah, we don't have, we don't get stuck with anything. It's a, it's a well-orchestrated conversation and discussions with us. We, we, we get it all out the door. Andrew, as you know, you've been here long enough to know we've gone through this 2 or 3 times with them, with new lines and new products, maybe even 4 times over the years. Mm-hmm. it's. Yeah. We never, we never, we never had any inventory left. Yeah. Moving on to Hy-Tech. What have the shipments to the major OEM customer you have referred to on prior calls? Have they continued and/or increased their level of activity in this current quarter? It looks like it did okay. Can you also comment on their business with you in the present quarter? The large OEM customer places fairly large blankets that go out many months. Could even be six or seven months worth of product or more, so deliveries can be spiky. We work them into our production plan and get them out the door, you know, in a organized fashion. I don't know that I would glean too much from any particular month's shipments to that customer. We kind of take a look at it over the quarter or even quarters at a time. Mm-hmm. The good news is we're in great shape with them. We're excited about the future with them. We're working on some things. You know, we're, we're hopeful that we can do better, even going forward on top of the levels we currently even have. Our levels right now are very healthy with that customer. Very healthy. Last quarter, you discussed how you were making inroads to a customer in the rental market for industrial tools, and were working on tweaking some products to better serve this customer and market. Can you expand a little on your progress this past quarter and prospects for the rest of the year with these products and this customer? That, that continues. There really isn't much of an update there. It's a longer term program and, you know, we expect to be working on this for the next few quarters. There's not really much of an update. Okay. In the OEM engineered solution segment or subsegment, are there any other particular areas, industries, products that have grown worthy of any call out and elaboration? Nope, not at this time. Okay. On the last call you mentioned Jackson Gear had a lot going on in the international mining arena. Did that subsegment continue with its growth? Were there any other types of customers worthy of a call out as to momentum? Yeah, we're, we're still doing very well with international mining. Again, just to remind everyone, it's not mining for coal necessarily. It's mining for just about everything you can mine. It's spread across a number of international locations. It's doing very well. That customer is doing very well with us. Okay. As is our backlogs in, in that business. I wouldn't call it the Jackson. We call it the PTG. PTG business. Our backlog is very, very healthy there as well. Right. Now, you mentioned backlog on aerospace and backlog with PTG. What do you define kind of as backlog? These are POs that you have, these are orders with expected deliveries within the next 12 months, the next 6 months. How do you define backlog when it comes to aerospace, and how do you define backlog as it comes to PTG? It's, it's both. It's both. I'll let Joe elaborate, but we monitor bookings on a daily basis. But Joe you can. Backlog is an order that hasn't shipped yet. It's. I don't know how, I mean, I'm not quite sure how to define it any other way. It's open orders. And- You know? So it's kind of it's quantified. Any chance that you guys might consider providing those kind of backlog, numbers in, present and future quarters? We are reluctant to do that. That number moves around a lot. I think we're better off explaining the general outlook for the businesses. I'm just not comfortable trying to explain what's happening in the backlog because backlog is very different in terms of each business unit. Some have a few weeks of backlog, some have a few days of backlog, some have three months of backlog. Then for me to parse out what's going on across eight different product lines, and they're each of them in their different backlog, you know, normal relationships would be, frankly, I don't think, very helpful to investors. I think it's, we're better off explaining the overall business, because as I said, if you take our largest customer, we could get an eight-month order from them. work it down over four or five months, ship it all in 30 days, wait for the next order, and then I'll get a question about why backlog dropped by $2 million when there's absolutely no issue going on with that customer. Just waiting, we know we're working with them on the next order. I don't think it's going to be very helpful to investors, and that's one of the reasons we've never disclosed it. Okay. To what extent has prior under-absorption of manufacturing overhead costs, that you've been referring to in prior press release, been addressed in Q2? What are the remaining issues, if any, to be resolved? Can you expand on the steps and timing to address these issues? Yeah, as we've said in prior calls, we've, over the last six months, seven months, we've brought in actually 3- 4, you know, fairly expensive pieces of equipment that'll help automate things. We are frankly, a little behind schedule on where I'd like to be with those machines being up and running. They're all up and running, but we're well behind where I'd like to be in terms of their benefit to the operations overall. I don't really think we're going to see much benefit for those machines until even the fourth quarter. I would estimate that I'm just thinking a number, 4 machines, probably 20% of the benefit in this year. Most of, you know, next year we'll see almost full benefit for the whole year. Lots going on. We were excited about the runtimes that we're seeing, but there's a lot of tweaking, there's a lot of coding, there's a lot of additional tooling that has to go in place. It's just a slow process. We're, you know, we're taking our time. We were hopeful that we'd be a little farther along than we are. You know, it just is what it is. We still are highly confident in the ability of those, those new tools to drop some money to the bottom line. Yeah, it's gonna be it's gonna be very significantly, and very, very profitable and very good for us, efficiency wise and all that. As, as Joe said, it'll be, it'll be phasing in over the fourth quarter and next year. We're expecting very good things. Having said that, we're, we're not having any issue getting product out the door, in general. You're just manually loading things instead of the robots doing it? Well, yeah, yeah. I mean, we, we were, we were achieving these levels of shipments, you know, just about a year ago. These are going to help a lot. Mm-hmm. Now, when you talk about this, is this... I asked the question within the PTG, but you're talking about automation equipment that is at PTG or Hy-Tech across the, the board, or also at Jiffy and Florida Pneumatic? Hy-Tech, and it's Jiffy. No, Florida Pneumatic doesn't manufacture, in, you know, domestically, really. It's Jiffy, it's Jiffy in both our facilities at Hy-Tech. Okay. I think we said. It's all three areas where things are a little behind schedule, but, but the machines are in, but you're-. Yeah. just getting things tweaked. Yeah. Yep. We spent roughly $2.5 million in CapEx this year on these machines, and very, very exciting and promising for us. your prospects, Every year. Yeah. Is your... your prospective CapEx spend from this point going for the rest of the year, is what kind of level and for what other equipment? Modest. I think, I don't have it in front of me, but I think the full year is something like $2.9 million or $2.8 million- $3 million. Maybe there's. Well, we're already in August. I say in the Q, in terms of our reporting, there's probably $1 million less to go, but we've probably already spent a good chunk of that already. By the end of the third quarter, it'll be, the money will be spent for the- It's about $1 million left as of the end of June, the June quarter? Yes. Right. Okay. Andrew- All right. There's 3 minutes left, so. Thank you. Is it yours and the board's view to focus P&F more towards making new acquisitions to, or to permanently lower the company's average debt levels, or expanding the return of capital to shareholders with highly selective, you know, buybacks or increased dividends, as the company appears to have returned to sustained profitability and, and even higher cash flow generation? What, what's your thoughts here, Richard, and the boards? Yeah. The, the board and I, myself are very, very focused on acquisitions. There are, there are a few that, that I know of that are potential, that'll be good for us in the same exact field that we're in, which would add to our business. If they make sense for us to move in and we can make, make the deals with the people, the other companies, we fully intend to do that. It's nothing imminent, but certainly, I would say within the next 9 months to 1 year, I would expect that we will, we will have at least 1 acquisition. You know, I would hope. is this- So- Is this on the? Yeah, your debt levels are very low now. Very, very low. We have a big runway, but aligned with the bank. Right. Right now. These acquisitions in the, in the focus of PTG? other areas of Hy-Tech or, inside of Florida Pneumatic, in the indoor aerospace operations? Well, I can't be specific about it, but I can tell you it, it could be affecting all of our, all of our companies in a good way. Okay. This is kind of the way I would, I would describe it. We're looking at acquisitions. We always are. This isn't any new information, but I think you rightly point out debt levels are getting to the point and, and sustainability of profits and cash flow are getting to the point that, we, you know, we certainly will be in a position to pull the trigger on something, you know, at some point next year, assuming we're comfortable with, you know, how, how we're doing with our, with our factories. Andrew, you have one -- any one last question before you're... If you don't, if you don't mind? Yeah. The one last question is, it's nice that you're thinking about the acquisitions, your focus and your discussion on it is, your debt levels are low, we could use debt to do it. The one thing that we can't really do is use shares to do it, in light of the fact that, you know, our shares are so deeply undervalued relative to book value and, and, and even tangible book value, which, which is north of $10 a share. In light of these operating, and sustainable, progress you made, is there any thought of perhaps doing some, you know, non-deal roadshows, talking, you know, to the investment community a little more outside of these quarterly calls to raise the visibility of, the company, its cash flows and its prospects, so that your acquisition opportunities could be done with the lowest cost of capital, which might, you know, at some point perhaps not necessarily be high interest debt? We, as, as you know, we've said this many times, but as we, as we talk about this at each board meeting, we certainly intend to do that. You know, to be, to be seen, but it's not, it doesn't go on loan for years, what you're saying. Thank you for that. Okay. All right. Thank you. I thank you, Andrew. Thank you, Mr. Shapiro. Ladies and gentlemen, once again, if you have any questions, please press star one at this time. We're now go to Timothy Chavez, who is a private investor. Please go ahead, Timothy. Good morning, gentlemen. Thank you for taking my call. Good morning, Tim. Richard, it's exciting to see you optimistic and enthused and even, dare I say, chipper. I have one question in mind only, and that is, I'll never drill down like Andrew, but, but, I'm going to drill down in Florida Pneumatic on the $1.9 million decline. Probably a Joe question, but whichever. In the retail segment, can you give some sense of what part of that one third, two thirds is due to the lack of the pipeline fill that you saw in the year ago quarter, versus the choice of certain customers, Home Depot, I don't know, to reduce SKUs? Yeah, I, I don't, I don't know if you're asking this question. I'll let Joe fill it in, but it's essentially the SKU drop and of course, the economy, which is slowing down, but Joe, you can add to it. I would say there was a re- you know, there was... Q2 of 2022 was a pretty big quarter. We had a rollout. We refreshed the line that, you know, as you know, we refresh the line every 4 or 5 years. We refreshed the line. It was a running change. We certainly had a, a bump up. I mean, it was a $7 million number for sure. I don't know exactly, but it was $7 million. Yeah, I think there's definitely some of that in there, but it's lost a little bit. There's three things that happened. There's the rollout. We dropped 6 SKUs, and then in addition to that, prices were raised, and I think frankly, there were probably a few less units sold. Our margins got better, but a few less units sold. It's a little hard to parse which one of those things exactly drove the total change. They're all in there, but, you know, not to be lost, there was a seven-figure rollout. Okay, well, it sounds like that the bulk of it or a majority of it then is just the lumpiness of the rollout and not a permanently lower level of sales due to reduced Stock Keeping Units. That's real. That's true, that's material. It sounds like it may, that the lumpiness factor may be the not the outsized amount, but maybe a majority, huh? Yeah, I mean, the level of revenue for the quarter, that we have in retail is a pretty sustainable number, going forward without trying to get into projections. You know, we think that's a reasonable figure. Yeah. Well, I'll just, Tim, I'll just, add to what Joe said. In the, in the end of last year, Home Depot sales were going down a lot. They were tightening inventory and all that kind of stuff. Now, as Joe was saying, in the last three months or maybe more, their levels have been very predictable. Their orders have been very predictable, and, whatever their business is, it's ongoing at this point, and it's, it's stable. Say it that way. Okay. Okay, okay. I know this may shock you, but I don't have anything more, so, thank you, and, have a good day. Thank you, Tim. Thank you very much, sir. Ladies and gentlemen, once again, if you have any questions, please press star one on your telephone keypad. We do not appear to have any further questions coming in. Mr. Horowitz, I'd like to call back over to you for any additional or closing remarks. Thank you. Okay. Thank you all for your time today. We wish you a good rest of the summer, and, we will look forward to speaking to you with our third quarter numbers, closer to the end of the year, in November. Thank you all for your time today. Ladies and gentlemen, that will conclude today's presentation. Thank you for your attendance. You may disconnect.