Q3 2020 P&F Industries Inc Earnings Call

Hello, and welcome to D. P. S Industries incorporated Q3 2020 earnings Conference call. Today's conference is being recorded at the conclusion of todays presentation. We will open the floor for questions at that time, you May press star one on your telephone keypad to enter the queue.

At this time I would like to turn the conference over to Richard Goodman, The Companys General Counsel. Please go ahead Sir.

Thank you operator good.

Good morning, and welcome to Peanuts Industries third quarter 2020 conference call with US today from management are Richard Horowitz, Chairman, President and Chief Executive Officer, and Joseph Molino, Chief operating Officer.

Q financial officer before.

Before we get started I'd like to remind you that any forward looking statements discussed on today's call by our management.

Putting those related to the company's future performance and outlook based upon the company's historical performance and current plans estimates and expectations, which are subject to various risks and uncertainties, including but not limited to.

Risks associated with the global operate to cope with 19, another public health crises exposure to fluctuations in energy prices getting debt service requirements borrowing a compliance with covenants under our credit facility disruption in the global capital and credit markets. The strength in the retail economy in the United States and abroad risk.

Risks associated with sourcing.

Turning to cities importation delays customer concentration impairment of long lived assets and goodwill unforeseen inventory adjustments or change the purchasing patterns market acceptance of products acquisition the businesses regulatory environment.

And information technology system failures and attacks and those other risks and uncertainties described.

Right and the reports and statements filed by the company with the FCC, including among others as described in our most recent annual report on form 10-K quarterly reports on form 10-Q, and our other filings. These risks could cause the company's actual results for future periods to differ materially from those expressed in any forward looking statement made by or.

<unk> for the company 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 and with that I would now like to turn the call over to Richard Horwitz Good morning, Richard.

Good morning, Rich. Thank you good morning.

Everybody and thank you all for joining us today, I'm not third quarter 2020 or for our third quarter to 2020 results.

Hope all of you were doing well under these continuing difficult circumstances in life.

Like to acknowledge this continues to be extraordinarily challenging times.

Sales of health and the economy in our thoughts are with.

With those all those affected by Copel.

I would like to direct your attention to the company's press release that was released earlier today, which includes the company's September 30, 2020 balance sheet and statements of operations and statements of cash flow and discussions.

The company's results of operations.

In order to stream.

In line this call today.

I would like to note. The following two items firstly as we get the earnings from the last quarter instead of management summarized in the company's results and other information from the press release as we have done in prior years, we'll move directly to a question and answer section.

And secondly, please be aware that we.

Well only be answering questions directly relating to the company's results of operations and financial condition.

We must insist that you would get to this procedure management will not be entertaining any questions that go beyond the scope of the school.

And with that we would be happy to answer any questions anybody may huh.

Operator, you may open the lines at this time.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure your mute function is turned off.

No to reach our equipment again press star one to ask a question, we'll pause for just a moment to allow.

You want an opportunity to signal for questions.

[noise] well take our first question from Andrew Shapiro with Lawndale capital management.

Hi, Good morning, guys I have several questions I'll ask a few and then back out into the queue to provide for others to be able.

People ask sure.

I noted in this quarter's results is in particular in Florida pneumatic.

You had done three of your sectors have greater than 20% sequential growth from last quarter.

And I was just wondering if you felt.

That's a that's a sequential growth was a function of seasonality or more a function of.

A rebound from a economic headwind or some other incremental demand either from new.

Product or.

Uh huh.

Covert induced extra demand versus say a rebound in volume from a prior slow down and and your customers just catching up I'm trying to understand to what extent such sick.

Sequential growth is.

The momentum and continual <unk>, if you understand the nature of the question right.

I understand the question.

Yeah.

The I mean, nobody has a crystal ball, we don't know exactly we don't we're not lucky enough to.

Good information from those customers in a way in because honestly I don't off the they even know when a lot of cases, but.

The increases and those customers that you're referring to we believe and some of it is mostly it's not seasonal it's not a seasonal thing, it's it's catch up and and all.

So in our retail side, we're getting an enormous amount of orders on a relative sense, an enormous amount of orders from spray guns, which obvious.

Obviously people are using for other things now then the intended use of that of that that tool for like or at the SEC.

Arctic and other purposes. So isn't there has been an extremely large demand at our retail outlet.

For that particular product and so we've had an awful lot of that but generally.

Generally speaking I think that.

Its pent up demand and ER and the only.

The only caveat to all of this is if the economy breaks down again, a good shutdown again by this enormous breakout now of of 'em out you know of coping now we're hoping that that doesn't happen. Then we can continue to move in that direction, but we're very encouraged by whats, but we've been seeing in that.

That sector of the of the business.

You want to add I think that out.

The only thing I would add is I would just reiterate.

That our entire company now [noise].

There really isn't any seasonality to the business that that concept, it's kind of gone back a decade, there's no seasonality to our business anymore.

[laughter].

Okay, and and regarding the the spray gun for Sanitization type of purposes are you are you hit do you have visibility into and do you have a sense are there particular industries that are.

Our creating this incremental demand.

For the spring persons percentage to no we don't.

We really don't forget we get beat our orders you know weekly and we did just getting getting them, that's what kind of [laughter].

And for a new I guess this is a new manic power.

Powered kind of.

Yes, Yes, Reagan uh-huh, yes, so so how portables and.

How portable game then is the spray gun itself or is that to you know travels around and just trying to get a feel for it's it's a broad use.

Joe you can maybe chime in on that but its portable I mean, it's not light, but you know, but it's definitely portable and people carried around with them. Joe you want to add I think that yeah. There's a couple of factors.

The the size of compressor you might need to appropriately use a spray gun.

On it.

It is not nearly what you would need to drive you know an impact wrench, certainly a sizable impact wrench. So that's one issue. So the compressor itself might be small enough to be on wheels.

And second you know.

You can have pretty long hole.

You know if you're just talking about.

Brain.

Because again.

You can build up a fair amount of pressure.

And you know 2030, 40 50 feet a hose.

Not sure that's going to make a big difference. So I guess to answer. Your question is it's fairly it's fairly portable because it's really a.

Much less.

There's a lot less pressure required and then you.

You know you're driving that something would have lots acquired a lot of talk.

Actually there are yes John.

Yeah. They couldn't remember this is being sold at home depot and places like that people are kind of these products out there not a I mean for the most part to not ordering.

During my line, even though they do sometimes.

So the bulk sales this is oh I'm home depot, rather than your catalog work that you otherwise do.

I believe that's the case and the right, yeah, and and yeah and a good number these people are going to be homeowners and right.

Homeowners.

Have the largest compressors unless they've got to do.

Big Big garage shop, So again, I think theres, a we don't exactly know where these are going I know I've seen pictures of the spray literally our spray gun being used to disinfect the theater, but we don't really know.

Exactly.

Right.

So what then is the theaters are interesting you say that because I know that industry is in the theaters expire.

Expand from one or two showings a day to multiple showings a day than their utilization of such sprayers would and naturally then increased.

Yeah no doubt.

Yeah, but again, we don't we don't know anything about were strongly we're not critical information. So it would be speculation on our part Ginger now.

Now that would be this would be one of the things fueling the retail sector of the Florida pneumatic what about the automotive and industrial sectors those off.

Also enjoyed a greater than 20% sequential jump yeah from last quarter, how they're there they're just a very vigorous orders and that's and we're not complaining obviously, but no recap in terms of visibility and sustainability.

We don't know, we don't know the answer to that.

We don't know right to that I mean, it's been going on I I should say to you it's been going on for the better part of the quarter. So it's I mean, so we were hoping and expecting that perhaps it continues but it's just their own opinion again.

Okay, well, we're in the Middle of November did you see that continue Russian Guy.

Go on to October and learn things might already know.

No nothing has changed as of yet.

Okay. So Q fours at least moving along on right on on the other sector in Florida pneumatic obviously the headwind.

That's aerospace and that's primarily I guess do.

If he then or I'm not sure if Florida pneumatic aerospace is really something that separate anymore.

Or is it across the board and that Doctor, It's both yes.

Yes, Okay and boat and is it primarily it's primarily Boeing and Boeing suppliers.

Yes, I would say, it's primarily Boeing.

Following them Boeing suppliers is that correct or not.

Not not yet, but I think like grid as a percentage of it yes, but there certainly has been a slowdown at least there had been for a while and military production as well.

Right.

Okay trying to shed a little bit of lights now.

Yeah, No you mention.

And in your release, and then I'll back out so to let others ask questions you mentioned in your release.

That youre encouraged about some opportunities and some mill in commercial aerospace projects that have been under development.

During the pandemic, there and you have sample.

Samples ready.

And I'm assuming that if these samples were accepted what happens is these tools then get specked into an approved for utilization again by manufactures servicers et cetera in the aerospace industry that how it works.

Correct, Yeah, you can yes, that's correct.

Okay and can you name some of the aerospace projects that are maybe publicly under development that youre trying to get specked into them.

I don't think we could have we should really Joe do you have any information yeah, we're not.

I'm going to you know, we're not going to go into that detail, but I would say that the projects range.

Ah across commercial and industrial or commercial and military and they are worldwide projects.

Okay, so you've been making some headway into that large.

Airframe manufacturer in Europe then.

Yes, we are we are working on [laughter] right, that's what I'm, saying, yes, we are making headway with that it's a project, but now of course Europe is in a worst case and shutdown mode than we are.

Right now so we don't know what's going to be UK is shut down.

Down right now, Germany parts of Germany, a shutdown, it's not the whole country I mean, I think Italy radar at close we don't know.

It's Andrew if not for the fans if not for the pandemic I'm pretty confident we'd be having some some meaningful sales in Europe, but we just cycling nobody there there's there's no.

Testing right. It's just it's just that Oh literally in a holding pattern.

Okay. I mean, the pandemic is going to come to an end the course of the disease. You know is a two week.

You know course, and it will be overcome so again the vaccines are on their way by next year. So.

That's what I wanted to get a feel for is your you know your securities are at less than 50% of book tangible book value below net net working capital.

And as long as you can be generating income.

[noise] sector contribution profit.

Towards the entity and then the pandemic.

You know and the economies open up you know then it's a you know a sizeable new and interesting invest right, which is why we're having this call right I'll, let me back out and.

I do have more questions. So please come back to me.

Sure you got it.

Thank you we'll take our next question.

Sure from Henry D. Brown.

Oh good morning, everyone.

Good morning, I have two questions with the approximate 15% decline in revenue.

A third quarter 20 versus 19 has there been any reduction in the workforce.

<unk>.

Oh absolutely.

Absolutely.

So how is the word.

Uh huh.

I believe we were gonna do start guidance, Joe I mean, we've had the answer is absolutely yes. Please.

We've already started work companywide.

Weve company.

Our workforce.

We reduced our workforce about 15%.

[music].

And when when did that occur.

No I mean it.

Besides working.

Yeah, the staggered, but it was basically from a from a may.

I believe a June you know to August I guess that Roger.

Yeah. The bulk of it was June but there was some before and there were some after.

Right.

Okay I have one last question since there's no detail into S.G.N.A.

I would like to know.

For the three months and or the nine months.

What amount if any is there expensed.

For the executive bonus or Horowitz bonus whatever you want to call it.

I'm talking Theres job, because that's what we're talking about the bonus.

That's spoken about in the proxy statement and I assume one of the.

The crowd out real well.

Bonuses across the entire company are dramatically reduced so there would be very little.

I mean, I don't know the exact number but very very little up small number.

Okay. Let me just sales ask a follow up to the.

But Mr. Horowitz as bonus as stated in the proxy statement for for 19.

His bonus was set.

Based on a formula of fiscal 19.

Earnings before taxes.

Depreciation and amortization is that formula.

Same for 2020.

So the answer is yes, it really is up you know.

There really isn't a formula I don't know that we use that term and there's a there's sort of a structure that has.

Then used over the years.

On briefs. They had it was based on achievement of a minimum target level of company profit.

Calculated primarily upon the level of earnings before taxes depreciation.

And and I'm as amortization achieved by the company.

Henry I would I would say I would suggest that this is not a question for this call. If you have a question specific to this feel free to contact the comp committee or.

The head of the company you have there their contact information I'll answer the questions as best they can.

But what I'm sorry.

I'm, asking something curtains and see if there was a charge or an accrual for this bonus in the quarter for the quarter for the quarter were lots of different question, Joe All all by all bonuses for the quarter any bonus accruals would have been quite modest in the quarter.

So I'm not the answer is yes not material.

Hi.

You know if there is anything it wouldn't be material okay.

Okay. Okay.

Okay.

Okay, because as as I read it.

In order to have this.

The competitive we answered the question we answered the question for you. So how you read it is fine, but yes. The question okay.

I guess one other question no okay. Thank you.

Thank you once again, if you would like to ask a question. Please signal by pressing star one.

We will take our next question from Andrew Shapiro with Lawndale capital management.

Thanks, a follow up on a hand.

Henry's questions on the workforce.

Reid reduction and.

The more details about the company's.

P P P loan [laughter].

Your balance sheet shows.

A portion migrating from long term pay.

Payable now to current maturity long term debt.

HM.

The timing for your first off when you apply for forgiveness is it the company's plan to apply I think it's the 24 week measurement versus the eight week measurement.

So methodology.

Yes, Joel <unk>, yes, Okay, and based on I guess your workforce reductions.

Reductions and calculations first off when Wendy when is it you're going to submit for the application, which then starts the clock.

Picking them.

And when does a determination of forgiveness is to come.

It's a it's a <unk> it will be it will be we're in the midst of it now but.

I don't we don't have an exact time, what we'll be doing it but it will be it on the short term it'll be sometime I imagine it will be sometime in this quarter.

Okay.

[laughter] so based on that timing do you anticipate the decision on forgiveness and thus the.

A one time bottom line recovery.

Of the expenses associated in Hamburg.

Already been recognized.

Upon which the PTP loan.

Funded.

To be a fourth quarter event or likely to be a first quarter.

Benefit.

Joke it can answer the ground they should I mean.

I would say based on.

Conversations with our bank regarding their internal process after we file the.

The application and what we understand the timing is from.

The.

The SP, a I did I'm guessing, but I think it's going to roll into Q, So Q1 [noise].

I mean, I don't know that for sure I mean, they could turn it around in a week, but I.

You know I guess I'd.

I don't think that that kind of efficiency is indicative of this.

Graham.

[laughter], yeah, Okay fair to be kind to be kind I mean, they do have a they do have a time limit.

And it sounds as if I mean slam dunk applications, perhaps but if you had some workforce reduction.

Probe that occurred during this window.

Then there's going to be a bunch of calculating that the bureaucrats as as well as the middle men are going to have to calculate.

So they don't have the coffee holding we do the calculating just there. So yes. They are yes, you do the calculation.

But they do the verified and you know your analysis or yeah. Okay. So that's why it's not going to be a one week turnaround. So that being said do you feel based on the workforce reduction, but all the other expenses that are allowed to be included.

Even the 24 week period.

[noise] that youre.

Payroll and the other a loud expenses will have consumed up and so cover all of that 2.9 million.

Well again, we're speculating, but I I'm going to say that.

We're pretty confident that you know 90% plus of this.

Oh lessors, some surprise, 90% plus of this will get it for you.

Right no, but are you so you're not necessarily applying.

Or an amount that's in excess of the 2.9, which gives you some cushion that would get there's no time, yeah. There really isn't a concept of applying for greater than the 2.9 get it's kind of a.

A little complicated on how it all works and we've been working with some consultants.

Just to help us with it so.

So either.

Even though we had a workforce reduction.

It did not affect in my opinion.

Didn't have a major effect on on the on the the calculation.

Okay, and so all right and then when its way.

The loan gets the bulk of the loan gets forgiven and being potentially a Q1 event not a Q4, so run out of time.

What would be the accounting treatment for it on your income statement is it going to be.

Where something like in other income line is it something where you're going to do a reversal of the various payroll cost lines, which would obviously go into the gross margin and this and the subsidiaries and everything else how how do you.

How do you plan to account for it and where where we'll see this in the interim.

Some statements.

It will definitely be a separate line item I don't think were going to be doing.

Doing reversals of the various expenses.

And again were.

There is no assurance that this is going to happen.

There's going to be a lot of scrutiny around this.

Forgiveness application.

And.

You know who knows if they'll be greater scrutiny with the next administration to simulate the next administration, so but again assuming that it is received.

It'll be its own line item.

Plainly visible on the base and the financials well, it's almost a dollar share so its not insubstantial. So its that's one reason I wanted to get into the Nitty gritty on it.

Yeah.

Talking about Hi Tech.

Now so so high tech.

Sequentially.

Hi Tech had.

Actually in proven and on ATP, but whats called OEM.

Had the sizable decline and in aggregate that resulted in a.

A modest sequential.

Sequential reduction in on the high Tech side can you talk a little bit about what it was on ATP that has started to rebound and and what it is in the OEM side that further saw a drop off.

Off and.

And provide some color in both of those instances about what maybe some you know sustainable and what is maybe like a onetime bitter pill and then things stabilize.

Yeah, Joe I.

I mean I want to discuss.

But sure we don't discuss yeah, we don't discuss customers names generally speaking, but we can talk to you in concept for sure.

Good starting with ATP I'm I think it's just a rebound of the very weak orders in the spring.

I don't think there's anything special there again.

At ATP is very reliant on oil and gas and <unk> among other other things, but in addition to the oil and gas being down everything was down in the second quarter. So.

It's just a return to a little bit more of a.

Normal level of orders again, excluding oil and gas so that ATP nothing.

Nothing in particular, there on the yeah I'll just say I'll just said excuse me. We we are very reliant oil and gas in ATP and with a heart with the with the active hurricane season in the Gulf Needless to say, it's it hasn't had a it's exacerbated the situation even more so.

Just so you know, but but having said that we have gotten some sales.

Of late not not really meaningful but sales.

Put up for those lines of product yeah.

Yeah, but not not sustained not like predictable and like we've been talking about before with the with the retail and.

Florida, pneumatic and things like that.

It comes it's pretty it's comes a little different rig count it seems the rig count has stopped dropping further.

Okay that makes they have the rig count is so low it's like a it's.

It's almost and I don't think I ever remember, so essentially on track and as a group.

Accounts this low it's still and we watch it every single day honestly that and the price of oil, which which has been in the toilet until about a.

A week ago, and now it's gone up again $42 or something along those lines. So it's just it's a precipitate it's precipitously dropped and.

And now it's been regaining control again, but it's all it's all it's all a big mess in that area got a job okay, yeah switching over to OEM.

Hi, techs largest customer which is an OEM customer.

Took their last shipment per month in June.

And then.

Told us that it would be a while before they ordered again.

So there were no there were nothing I don't next to nothing in the way of sales to that customer maybe other than.

You know, maybe some spare parts or whatever in the third quarter. So that's a pretty big hole in.

And the revenue stream and obviously.

<unk> as a percentage an even bigger hole in the OEM category and another major customer.

As you know dramatically reduce their orders as well in the OEM area. So.

That's what's going on there, but having said that we thought we did get we did get from one of those customers a very.

Ice order in the last week, which is you know it takes a while to build it won't probably have a impact on Q4 of any consequence, but at least it shows that there's some life in that area going forward, we think.

Yeah, I think that's what I was going to ask is if this was indicative of right well having launched last.

In order to a competitor on the unhealthy none of that no point in both of those no cases.

We're pretty specked in so any change.

In that revenue stream would require many quarters of transition so no.

Can you describe the.

Year to user market or the type of product for each of those two customers to get a feel for.

Whether we could assess visibility on return in demand.

One one I don't know, how our internal has oil and gas.

And we have one with one of them was oil and gas.

Related.

I was just I was just referring to and Joe go ahead.

Because of Jetboil and gas, it's also power generation in general and some automotive.

And the other one is it's almost entirely aerospace.

Okay.

All right and now the P.T.G. group to see or the power transmission group with the acquisition of the Blaze.

And the gear products entities TG.

Combined with the legacy business that sector is now the largest revenue generator.

Sector of all of the high Tech almost I guess, 38% and this last quarter's revenue.

That one.

Can you talk a little bit more about I think it was a mixed bag, meaning I guess your little you own legacy gear [noise].

Customer or business.

<unk> was weak and which was slightly more than offset by the the new.

The newly acquired dumb business, which I guess is beginning to gain some traction is that the case or is that.

Because this was a measurement here is on a sequential.

Versus second quarter basis.

Yeah, well you summed it up pretty well whatever we're going to say is going to be exactly what you. Just said, having said that we're not really we really have not made as much headway as we would like in the <unk> in the in the Blossman business, because we can't go visit customers and weavers, we discuss that.

That in the press release, we have been able to see customers they won't let us and sensors and it's really a a hands on kind of a sale. It's not something you can do on a face time or that kind of stuff or emails, but that business has maintained itself pending the levels that we bought it at and in these times.

I would do that but it's.

A very encouraging thing our other business is down as Joe referred to for the reasons you cite a majority may add to that.

The legacy gear business was oil gas fracking and mining.

And that would maybe half of that business. So that's all dried up.

Right.

Right now.

So it's you know it's struggling along and so.

So almost all the growth that you see would be even more if that business had been even flat, but Richard is right.

We have maintained the sales levels [noise].

Of the the big <unk> the business in the.

The businesses, we fought which says a lot considering we bought it after that you know before the pandemic started and were still roughly matching the revenue.

They had before the pandemic [noise].

But again.

Without being able to sit in front of the customer.

You know look.

It apart a gearbox whatever it definitely hurts I mean, we are doing some minutes, but I'm going to make this number robin.

We can only visit 20% of the places we'd like to visit.

You know we make if there's five places in it in an area we'd like to go visit we can get in the door one of them.

Just to give you a sense of.

How difficult that is.

And when we do go see the customers in person we've had relatively good success.

Sure. So we expect that that will continue as we get more customers.

Right.

And is there any an evolution from your customers.

Yes, and yourselves, primarily the customers.

That presumably they have a need for the product or they have a need for your services right.

And in an extended coated.

Experience here of a distant seen that.

Not that has prevented [noise].

Are you from being there in person and.

Your product is essential eventually for these people to keep on keeping.

Keep on keeping on okay.

That at some point.

Our our some of these.

Woods tumors are ready.

Evolving to A. on not in person annually virtual sales an explanation process just because out of necessity.

That's a I wouldn't I don't think we have the information to be able to say that but you can and what are your what are your perspective, what are your current or your perspective customers like doing when it comes to yeah. This this gear. Some work that you do it you know they need it done.

What what do they do are they is it is it that you're you were gaining share and they're just sticking with their current so their current provider or if they have a need.

What are they doing it.

If you cannot go and visit in person, Okay, well, okay. The optimal thing is to sit in a room.

Look at the part talk about apart point to things.

The next best thing you can do.

And then.

Then that send the sample and.

Then you know our engineers got it on their desk they get on the phone with the other engineer they talk it through the third best thing you can do.

His email the drawing.

If it's something as simple as just hey can you make bill to this back.

But as you can imagine in any sales, especially when you're talking about something highly technical.

Being in front of somebody is always better.

So it's not impossible if the if the gearbox breaks down.

They'll either send us the the drawings for send US apart, we can work off that it's not impossible, but it for.

That's if theres a breakdown, but if there is not a breakdown.

And you want to try to grow business and kick somebody out.

It's.

You got to be in front.

And then you got to be in there Bill Yeah I.

Hey, you know Shane gaining share gaining share is difficult but.

Servicing the customers it seems like the customers who have this essential need.

We have to eventually adapt to the new normal.

And and things are getting done for virtual.

Really.

Well remember Andrew we're doing business. So that's what we're doing the customers that we have and the two that we've gotten really getting whatever orders their hobby and we're satisfying than where we were doing that.

I'm trying to fill our things are becoming more efficient.

I think it's becoming more efficient.

At doing that.

I think we need more volume to become more efficient if you're talking about in the factory itself I think when you know I am already fishing more more efficient doing things virtually.

Just because you're asking me all you had to well yeah, well I guess by definition, yes, but put but really for these.

Existing customers not through a new customers because it's a hands on as I said, it's a hands on engineered product when they need to see people, but for the most part the people that we have already you know they'll have a level of experience and confidence in our abilities. So they talk to each other we can do that stuff, but new customers.

A much harder to convince over the telephone.

Okay. A question last call back out yeah, Yeah, I'd add to that there's nobody there is nobody else that you there's nobody okay I'm working on jobs Andrew Okay.

Okay. So on high Tech and just let me know if someone else shows up but otherwise I'll continue with yes, my remaining questions on high Tech.

While there wasn't because of this balance of.

We reduced business in some sectors offset by.

Games and other sectors there wasn't an overall.

Revenue sequential revenue increase there was a sizable.

In.

Increase in the gross profit of high Tech from what was last quarter a.

A negative gross margin and gross.

Gross profit loss to a return to gross profits, albeit a small margin, but obviously a major improvement in your in your margin.

From last quarter to this quarter is this a function of sales mix. What is this a function number or are there one timers that were involved I'm, assuming last quarter more than there would be one timers this quarter.

It's very it's a very simple answer Joe can add onto it but we have been focusing.

Very heavily in the last year on increasing margins for customers.

An increase in our gross margins very heavily very very heavily but full time full time onslaught and that is and now were starting to see the benefit of that is that the best way of saying it Joe.

That is absolutely going on but there are two other factors.

Q2 was this was a major query was from second Q2 to Q3 yeah.

Yeah, I remember you had the yeah the inventory write off in the second quarter as you remember.

Well so.

Yeah, well, so what was that amount sand that that wouldn't.

Hi, help equated out maybe it wasn't well actual improvement.

I would just like to say with regard to Q2 at PTC we.

We were still.

Consolidating.

Seeing what we had figuring out how to build what we hadnt built before and in Punxatauney hiring new people working on now.

[music] process, if it was just.

We are still in full transition so that had all sorts of implications for absorption training.

No.

Locating inventory not locating inventory you thought you had theres just a long list of things that hit the gross margin at P. T.

<unk> so.

I wouldn't say, it's any one thing that that drove it and then the second item, which is probably even a bigger effect.

Is that one large OEM customer that stop that took their last order in June.

They have the lowest gross margin.

End of all of high Tech Bye.

Thats correct mile or so right without them in the mix.

There was a dramatic improvement in average margin.

So the true so all three of those things were going on.

And so and then you know.

Then one more thing, which kind of relate but its revenue goes down or our overhead absorption drops so even though our standard margin on the product looks pretty good we got a lot of empty machines, and you know people sitting around and even though maybe we didn't lay off a person that person might be running through.

<unk> Threem.

Genes at a time when were busy now they're running one machine.

So that overhead absorptions lost so there's a lot going on between Q2 to Q3 I think three to four is going to be a little more stable. We're still you know we were out of the the.

And consolidation get it ramping up phase it P.T.G. were [noise] employees that are there now there are a couple of quarters. The processes are now solid.

Again, we're not going to have that.

That one OEM customer in Q4, they were missing in Q3 so.

Q3 to Q.

Or will look a lot more comparable with high tech and two to three there was just a lot going on between those two quarters.

And then Q2 what was the inventory.

Hit in high Tech that impacted gross margin.

What was it the site was it again it was still.

Consolidating inventory they've got no no no no the quantity what came out.

I'm not gonna proceed into what the you know ones I.

It was just it was there was some sales it was not disclosed.

Okay. All right. So that's one reason and again just to keep in mind.

You say, it's an inventory write off but sometimes it there's a little more.

It ends up as an inventory adjustment, but it could be there are a lot of contributing factors to that so [noise] I'd hesitate to say, it's just if it's an inventory change and the reason is you know you couldn't find it I mean, there's just a lot going on there.

Okay.

Can you opine a little bit about whatever.

Never visibility and termination you have or handle and.

Call it the ramp up timing of where you are in the pecking order supplying.

Products that are used by suppliers to Boeing and Boeing.

Itself.

Regarding.

What seems to be now [noise], a greater visibility on the timing it seems as if the 737 Max.

<unk> is going to get approval.

Fairly glow.

Really not just in us in the very near future to return to flight then there will be the training American Airlines announced this last week. They believe they will have 737 Max is.

I'm, assuming the approval comes in the next week or two.

They'll have 737 Max is.

Well some of them in the air by the end of the year.

Obviously, other airlines and and everyone else based on simulator Recertifications training pilots and all the other stuff.

Thats going to be a.

Q1, Q2 thing where they are going to start.

Doing that.

They got to fly the planes.

And get everything going before they can then.

Apparently start delivering what they have built up.

In their inventory, but they also would have their production line starting to do their thing.

In this kind of time horizon I've kind of described that is known right now and.

What.

How do you kind of for C.

The timing of when you start getting the phone calls and the ramp up of making some incremental sales.

Hills.

In your aerospace segment from this.

ER and Joe you can I guess, you could talk about where we will review and I've been discussion lets you days that's in China. So couple of things and are so you know there's the Boeing facility.

Of course, we sell to them.

They are a major supplier of the fuselage, which we supply.

That's correct right.

Yeah. So spirits I don't know if you saw their conference call well I did read the transcript they.

They've indicated they've got a lot of inventory they are going to be lagging Boeing.

Growth it'll ramp.

There's honestly I don't think Boeing even needs a building to build a jet next year.

Satisfy.

You know the demand even if its own grounded on January onest. So we don't really know the answer we heard numbers I think on the the Spirit conference call they talked.

Popular at Boeing being at 31 Jets a month by you know early 2020 2022.

But and of course, you don't go from for about 30 waterborne overnight. So I think it's going to be a slow ramp up and they're at for Jets a month now.

It's just even if that doubled I don't think we'd we'd see much so and again I'm just speculating I don't think we're going to see much in the way of business. There till Q3, that's just my guess I could be wrong, but and even if we do it's going to be pretty modest.

Now if that were the.

A case.

Your business level right now is is Neil it's not as if your business level would drop from where it is is that right.

Yeah, I do sort of redo business, yeah, but we do business in our in the other factor is a Boeing some modest business. So.

Not not enough to really right.

Draw attention, but yeah.

Yeah, but they're not renting is that how you're if you're out you're at a trough return building up from the trough right now maybe not until towards Cuba, I would your EBITDA guidance.

Yes, yes, that's true fluctuate fluctuating 50 100000, either direct.

Actually we're about where we are but we're about where we're going to be an aerospace sales right now.

Okay.

And then as they go they start you know going from four a month to month or whatever it again.

31, a month what were they running at before this all hit.

32.

This year. Its 50 50 52, I think that number was 50 I don't know I think it was Richard close it's about 50 50 or a low 50, okay.

Okay, and that's I mean, that's what that particular business, but you are obviously working on development and getting specked into a bunch of other programs. So of course yep.

Okay.

And that that those things are impacted by coded rather than any kind of.

Grounding of a model you know well I mean, if we working on a project.

That is an installation tool for a 737 Max.

It doesn't matter how many projects I'm working on we're not going to have a revenue.

Right right. So yeah, yeah, I don't know if it's a 70 37 then that's that's what it is but you know you're working on stuff for Airbus or try and again no. We you know you're working on some other military projects that yeah, yeah. That's so big.

<unk> <unk>.

That's impacting Airbus for sure.

But I would like to have a model thats been grounded.

No I think I read that Airbus was.

Their main rival claim to the 737 I can't remember what it is 342 40, whatever 330, I think they're building 30, a month or something.

Uh huh.

<unk>.

And you're working to get specked into that.

I I don't exactly there are multiple applications for the tool that I mean, the one tool I've got it there isn't there's multiple things we're working on so and I'm, probably not completely up to speed on exactly what model or even.

Moving what part of the model these tools might be involved in but you know various parts of the the jet and not necessarily selling to.

Airbus directly you could be like you know like Theres, the spirit, making the fuselages for Boeing there's various sub suppliers.

During the making various components to.

The two items Airbus So we're talking to all work.

Uh-huh.

No I have you been impacted at all in terms of your supply chains and if you had been are those impacts mitigating now.

Since Asia has come come out of the co good search.

Circumstances, a little bit better and not necessarily suffering a severe second way.

We really are.

You got job done again, that's where we're at as I actually got there are definitely that in Q2.

Two there was some impact.

We were able to work through it.

But at this point.

Work, we're home free on that at least for now.

Yeah, having said that having said that Andrew or there are some products that we didnt order enough.

Due to the unexpected demand that we received from the retail side, so theres spin some slowdown of.

Competing orders for that and getting shipments because now we had a turn on the faucet and it doesn't happen overnight as you can imagine so that's the only way you lose those orders are they go into a backlog did you lose the order.

I want to go into backlog now and I'll go into a backlog.

Okay, well that is so yes more most of it most of it most of it.

It.

I guess generally that's true it's it's just that there's enough inventory in the system.

At the store level or the distribution.

Some centers that.

Let's say that I'm going to make us stop on a particular part.

That say the distribution center supposed to have 300 of an item.

And there are 200, we can only give.

[laughter] 50 wells when we have the other item.

So what are the other 50 so.

It's I guess it kind of got maybe I guess it goes into there I'm not sure where it ends up at it eventually you're going to get that sale, there's enough slack in the system that it's not gone I mean.

When we're talking about stocking out it's really.

He's feeling the distributions that centers, it's not generally the stores are not stocked out in the general expenses using centers are not stock that.

Well, presumably then it will keep your factories humming a little bit better.

To catch up.

And we filled those saying the.

The the levels right.

Yes, okay.

Okay. Good.

[laughter] and ER.

In terms of the tariffs.

Tablets are a focus of ours.

Discussions.

And of concern to all of Us only.

Only a year ago it seemed to be a.

He a thing.

A problem or a worry of the past.

In light of a likely change in regime.

And ER potentially a different approach.

To trade relations.

Do you expect if any.

Any shifting is or do you have in insight or any shifting on the on the the tariff circumstance.

Our and what that may or may not do.

Two for the company, and and and including potentially shifting where youre.

I think you made some shifts in your supply chain before because of the tear ups would you be shifting things around differently. If the tariffs were wound down.

Our loan back.

I I don't think there'll be any impact with us either way because if the tariffs are gone or we'll be getting that money back to our customers.

That's not the question you're asking.

Ah, Yes that was one in terms of margin impact if any and the other.

No one is right does it cause any shifting.

In your supply chain or your suppliers, which the tariffs had caused some shifting would.

Would you go back or would you are you are happy with where you moved to.

No, we're where we're staying.

Saying, where we are we're not there going back now so that's why I mean as of now that's our plan is to change that got starts with us.

Got it alright.

I think that's it for this quarter other than you know we're again, we're mid November.

Uh huh.

What is.

When we started this quarter are you starting the quarter at the same pace.

Ended Q3 has the pace picked up a bit.

Where are things so far.

Our <unk> for the quarter.

Gives you need they're not really surprising or optimism.

I don't I don't think we I think we don't have any level of optimism or any level of concern where we don't have a vision as to if things are going to sustain themselves at the current level.

Levels or not I mean, I told you that the orders are for the first six weeks of the quarter had been the same as they were in the third quarter.

But we don't know if that's going to continue we don't have that when nobody has the window, we don't know what's going to be.

I don't know what else we could.

Probably say about that I can't tell you anything goes I'm not a bit on the crystal ball.

Joe do you want to add anything to that I don't know I mean, I don't think there has been a major.

Page.

From where we were.

At the end of September, but I mean that could.

Tomorrow could be different [laughter], that's where at least by aligning sales my 0.5 weeks into the quarter right.

Right. That's my point really is I mean, we don't know what that we know what were saying so far and me to answer that question for you Andrew but we can't tell you. What we expect is not normal cars or we can predict more you know clearly.

There's too many variables that we have no control over that.

And the government going all that if they cut down if they cut down the economy again close it down obviously, that's a whole different thing.

So.

I can't answer that can help you more than that.

Anything else Andrew.

Hello.

Oh.

We will never do a loser.

Okay.

Okay, Alright, operator are there any other questions operator any other questions.

We have no further questions in queue at this time.

Okay. So thank you all for being on the call today.

And leave we continually hope that everybody stays healthy and well and we look forward to speaking to you, but our yearend results at that time.

Stay well and happy holidays to everybody. Thank you.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

[music].