Q2 2022 P&F Industries Inc Earnings Call
Please standby.
Good day and welcome to the Q2 2022 earnings call today's conference is being recorded.
This time I would like to turn the conference over to Richard Goodman.
Company General Counsel. Please go ahead Sir.
Thank you operator, good morning, and welcome to Peanuts Industries second quarter 2022 conference call with US today from management are Richard Horowitz, Chairman, President 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.
Upon the company's historical performance and current plans estimates and expectations, which are subject to various risks and uncertainties and could cause the companys actual results for future periods to differ materially from those expressed in any forward looking statements made by or on behalf of the company. These risks factors and uncertainties are described in.
As 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 on Form 10-Q, four looking at our 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 earnings conference call.
With respect to the questions and answer a portion of this call.
It is the Companys policy that the length of the questions from any particular stockholder or other color 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 Companys results of operations and financial condition.
It relates to the second quarter of 2022, we must insist that you would hear to this procedure management will not be entertaining any questions that go beyond the scope of this call and with that I would now like to turn the call over to Richard Horowitz Good morning, Richard.
Good morning, and thank you all for joining us for joining us today.
To discuss peanuts results for the three months ended June 30th.
All of you are doing well.
As the country in the world are continuing to try to exit from this terrific ill effects of the global pandemic, while navigating through difficult domestic and global economic headwinds as well.
I would like to direct your attention to the company's press release that was released earlier today.
Includes the company's June 30th balance sheet statement of operations cash flow and the discussions related to the company's results for the three and six month periods ended June 32022, and how these results compared to the same periods in 2021.
Furthermore, I wish to highlight a few key factors that impacted our second quarter results the.
Jackson gear business, which was acquired earlier in the first quarter.
We're significantly has significantly improved our P T.
Revenues.
The shipment to our largest retail customer.
Hum of retail customer stocking rollout.
The decline in total gross margin driven by among other factors.
The rising cost of raw materials labor and outside processing.
Secondly, higher ocean freight cost and customer and product mix.
Hum.
And lastly, the <unk>.
Persistent it'll effect of the pandemic.
Yeah.
Finally in order to make better use of everyones time, you have to be mindful of the purpose of this call I'd like to remind all of you with the following.
First of all he has done for several conference calls.
It's become a standard practice, we will move directly to a question and answer session and not mistake was 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 related to the second quarter of this year, we must insist that you adhere to this procedure management will not be extended.
Any questions that go beyond the scope of this call and lastly, please be mindful of the 20 minute time limit that Richard Goodman, previously noted, which we plan to enforce as always to the X.
<unk> shareholders or other callers with questions that multiple questions. Please complete your portion of the Q&A.
[laughter] excuse me.
Within a 20 minute limit and then we will move onto the next question here and with that we would be happy to answer any questions that you may have.
Please operator, please open up the discussion there was a lot.
Thank you.
To ask a question. Please take note by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Press Star one to ask a question can we pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll take our first caller from currency Savvis. He is a private investor.
Good morning.
Good morning, good morning.
Congratulations on the the revenue growth material.
Can you give some 60 50000 foot.
Commentary on.
The.
Whether you know the ability to recover the the 400 basis points or wherever it is gross margin showed a shortfall I mean I'm looking at a company that and I know some of the you know the home depot, perhaps with lower margin, but the company finally looking at a company here that potentially you know would be.
Material profitability.
And pull the levers here to restore gross margin what was what's your broadly speaking what's your level of optimism that it's been a long time, but that we can.
Move that needle and get the company back to material profitability and historically you know each earned the dollar plus the earnings per share not asking for specific guidance, but kind of a high level qualitative sense of your of your optimism or.
Hi.
I'll let.
Joe answered that for the most part, but I'll just start by saying, Tim I wish any of us have a crystal ball to be able to talk about the economy. If the if we werent facing.
Session that you know that everyone keeps talking about everyday and every publication you know that's what you read I try not to read them anymore because.
So negative all the time, but it's.
God if that you didn't have that we could give you we could give you a very.
More concrete answer but there's.
Theres, so much unpredictability and the price increases are just so enormous and so erratic from our vendors and our.
Materials and stuff like that I mean, right in the range of you know.
You can get a 40% increase in our product and our raw material and two weeks later I get another 15%. It's just so crazy.
How do you, possibly you know combat, but Joe maybe you can add more color to that but just in general if you're looking for a high level review.
I don't think any one of us could give it to you because we don't know what's really going on in the world. We can only act on what we see today.
You may want to add.
Hi, Thanks, Richard I think Richard's general comments are all true I would say that the it's a relatively short list of cut.
Customers for us to really focus on to move those margins that I remind you in the quarter. We did have that one one large retail customer that shift you know that's our lowest margin customer on the on the Florida pneumatic side. So obviously that one quarter won't repeat so the average will.
Come up just mathematically on the high Tech side.
And the Florida side, we had.
Fairly rapid input increases throughout the quarter.
We were catching up with with concurrent price increases.
I think we were frankly, a step behind because that's kind of the way it is sometimes when the.
You've got a committed price and then your input goes up and sometimes you get caught in a little bit of a squeeze. So I think just mathematically will be catching up there just by.
The virtue of time, passing having said that we've got specific initiatives to address.
Some of the input increases in costs I won't go into specifically, what we're gonna do but to answer your question. Tim is yes, I'm pretty optimistic we can make a very big dent in that.
That.
Drop in margin some of it was mix, but some of it was also just still playing a little catch up on these rapidly changing input.
Costs.
Specific to.
Specific to our.
Do you or business that relates to the oil and gas market I'm not exactly clear I'm not as much of a student of the company is another large shareholder on this call.
But do do we view ourselves as.
The business related to that industry as being decent now or where it needs to be and growing or how quick how would you characterize how.
Where we see our customer base at our Oh are you satisfied with with where that is now and where it's going what its potential is actually for for further.
For further improvement in sales.
Yes.
You had you had dropped out of the picture of P&I for awhile. So perhaps you haven't gotten some of these phone calls, but the oil and gas part of that.
Our high Tech business is.
Dramatically different than it used to be we are nowhere near.
<unk>.
When we don't have is nowhere near as much business in that area, we've changed the scope of them.
The focus of our business and that and by doing so.
It's become a less important factor in the business.
So and it's really well.
Yeah, we see sporadic orders I mean, we definitely get orders, it's not that we don't get orders, but it's nowhere near as important as it once was it a different kind of a mix.
Our products and our customers' Joe do you want to expand on that at all or is that.
Yes, just to break it down a little bit there was a time, Tim what I would say oil and gas might have.
Generated 30% to 440% of the revenue for Hi Tech sales.
Now with the transformation of the company at Hy Tech.
I struggle to say that it's even 10 10 per se.
Net most and for Florida, It was never a significant piece.
Maybe it's 5% of sales there at best So it's just not really much in there. Obviously you said, there's robustness there we still have those customers in and they do well, but it's probably not going to move the needle as much as it might have five or six okay.
Probably something that only another adult large shareholder we care about them.
Imagine.
I'm going to get back in queue I don't know what the policy is but I would hope if something else comes up you might come back to me. Thank you.
Sure. Thank you okay.
Thank you and once again that is star one if you would like to ask a question and again well pause for another moment for anybody that would like to ask a question.
That's it.
And we'll take our next question from Henry.
Dave Brown private investor.
Good morning, gentlemen.
Good morning.
Could you tell me if there was any what was the provision for doubtful accounts in the current quarter compared to a year ago.
Joe.
That is not a number we we publish that I'm aware of.
But we probably have it somewhere in our Q files, if you'll give us a few minutes, we can probably dig that up I mean, I would say in general.
If they maybe what you're getting at is how healthy are our receivables I would say that we've seen minimal.
Minimal losses related to the pandemic and people not paying I don't want to say, it's zero, but it's not very material, but someone's gonna dig that number for you and we can get we can compare this June to the prior June if that's a number you don't want to do.
Well, Okay, well give me a June to December .
Any of the significant over 90 day receivables, although is handled in house or are they out with collection agencies.
Generally there I'm sorry, Richard go ahead.
Generally anybody in house Okay.
Yes.
I can't say that we've never put them out to collections, but it's usually only something thats very minor.
I did get the numbers for you. So at December 31, the provision was too.
Call. It 267000 and at the end of June 300000, but mind you a are dramatically grew between those periods are from seven eight to 10, seven so I don't think thats an unusual.
It's very healthy.
Okay. Okay, one last question relating to.
The compensation of the sales force is it a salary a fixed amount per person or is it salary plus an earn commission.
It depends on the.
Job description in the company that the person is in.
Couldnt I Couldnt tell you that there's one specific thing.
We have some people on salaries or salaries, we have some people on commission and we have some people on commission and salary.
So.
It's a mixed bag.
Okay, I'm going to back out thank you.
Alright.
Thank you.
Once again, ladies and gentlemen, if you would like to ask a question press star one.
Again that is star one.
And we'll pause for another moment.
Yeah.
And it appears we have no questions at this time.
Oh My apologies, we do have a follow up from Ken Timothy.
One moment.
I'm not sure what's going on with Shapiro I thought he had questions of his own so.
That's strange.
Got a follow up here I.
I appreciate the announcement of the dividend by the way. Thank you. Thank you for it Gen.
Gentlemen.
I presume I presume that is it. Thank you Richard I presume that's a that also getting back to my first original question. It is a statement a broader commentary on your your confidence level of the the business to be at a healthy enough state to us.
Yeah, we're not we're not gonna be burning through capital to pay the dividend the next several quarters.
You don't need to respond to that.
What was the follow up on that well I guess the other question would be.
And I'll ask this as friendly as possible because I know, sometimes it is wrong or what the buyback and and we.
We got the dividend which is great.
What.
As the board's attitude change your Kid can you comment Richard the boards attitude towards.
The buyback with the stock at $5 50, or whatever it is right now.
Sure.
We talk about it.
As I've told the Andrew and anybody else, who asked the question we talk about it at every board meeting and if we have telephonic board meetings in between the formal board meetings, we talked about that as well.
And.
It's all a function of.
What our cash commitments or what are what are.
Our projections are for the future.
What our priorities are and we felt at this time right now we felt that we want to return to the stockholders Scott to try to return to the stockholders.
So that's why we want the dividend, but you know if things improve continue to improve.
We would want it we would absolutely want to buy back stock at that time, but right now.
You know, we don't we don't have any comment about it because it really cant say, we talked about it all the time and that's all I can really talk about that.
Yes, so you paid the dividend and as I'm reading the press release, otherwise and we've had some demands on capital and we are actually I guess borrowing some money now I guess it goes without saying for declaring a dividend that you or Joe you're very very comfortable that to grow the business or otherwise you would have to fund growth.
There are probably working capital needs that that with the asset base I guess, that's what you said in the press release that.
You sleep perfectly well at night right.
Isolation.
Well, maybe I don't sleep perfectly well, but it has nothing to do with TNF, but.
Yes, I mean, I'm very comfortable with our financial position or cash flow in the quarter My expectation. So I'm, obviously, if I was uncomfortable.
With the 260000 or so I would have let the board now, but yes to answer your question. Let me, let me remind anybody else on this call. This will be called a special dividend for a reason because they did not win.
We're not we're not close to that.
Uncertainty in the world.
We have to we have we're going to look next quarter I was gonna look next quarter and we'll do that for the foreseeable future and will depend on the Companys operations and our financial condition.
Other relevant factors. So so it's not it's not a it's not a it's a special dividend in every quarter, we will analyze them.
Hope and plan is that we.
We will continue with that.
Can't make that commitment, okay, and Josie accounting just briefly is the accounting different for a special dividend versus a regular dividend in terms of you know.
The entry or whatever.
No not to my knowledge, it's been a long time since the CPA exam, but I would say no there's no.
There's no different sure sure it was taken from existing capital versus <unk>.
Retained earnings or something like that but I guess you may have negative return right now Theres no difference it just big.
It's just what we're.
There's no difference financially okay.
And then finally my final question is is there a way that that that you could give us again at a quantity a qualitative level.
Sense of.
Because of Boeing Air Max.
What you know what for wind opportunities that could come I mean, no. One really has a way of knowing as a shareholder.
And frankly, giving you guys. The credit you may deserve for what you.
Has been doing are achieving here.
The eight balls you've been behind is there a way that you could quality qualitatively, Joe and Richard to give us a sense.
Of I guess, you know not numbers, but the potential of our of that return or that getting back to normal or is there some way we could get a sense.
Can you can.
I think we answered that question earlier.
I'm not being dismissive, but I mean, we just we don't nobody nobody in the world has that answer right now.
I don't think you're not getting youre not getting from G. M Board predictions for the future. So I can promise you we can't do it either nobody knows it's a very big question Mark as to where could you look into your crystal ball actually though just kidding.
Okay. That's that's all.
That's all for me.
Okay. Thank you.
Mr. Shapiro at Texas City is trying to get in so I'm not sure I hope we have that he's gotten him, but he wasn't being acknowledged somehow even though he is trying to ask so just as an FYI. Thank you very much.
Okay.
Okay.
Thank you and next we'll move on to Andrew Shapiro with Lawn Dale Capital management.
Hi, Thank you for allowing me to ask some questions here following up on a few things that.
Tim raised and just trying to get a little bit more color on some of this stuff I just wanted to make sure you guys are aware under the legislation that the president's going to sign this week.
Is that an excise tax is going to begin in position on buybacks.
But it won't kick in until January 1st so there might be a consideration for the board.
In the event it might want to get a buyback in before then and then continue on with the dividend policy et cetera. So just an FYI.
I promise you.
We've made the same newspapers you do I promise you we understand.
Okay great.
And.
On the last call you said on the last call that it was only about 60% to 70%.
All the customers, where you were able to conduct onsite visits with current or prospective customers for both high Tech P. T G.
As well as existing North American aerospace like Boeing and its suppliers.
As well as prospective oversea.
Aerospace customers like Airbus did that improve in Q2 and even further here halfway through the current Q3, you are you able to get into pretty much all the customers who want to get into to start conversations.
Yeah, I I can't give you a percentage, but my general sense and my feeling is and Jochen cooperate.
But basically having no issues any longer with getting into customers. We've been we've been to Airbus.
But of course Airbus is like moving the <unk>.
<unk> ton gorilla.
So sure it's going to take to get there, but yeah. That's.
But it's pretty much.
We were able to get around Joe is there anything else you wanted it on there.
There is no I don't anticipate whatever restrictions are in place are going to have any material effect on our ability to grow the business.
Okay, because that was a big issue for P. T. G particular, because it's such an engineered product do you needed to get in there on site.
It absolutely was in and that seems to have subsided.
Awesome Okay.
Where's the under absorption of what you called the other manufacturing overhead costs occurring as it jiffy air tool and Dor, Hi Tech.
It's it's primarily high tech.
Oh, okay.
And.
With the sizable gains in the OEM engineered solutions in <unk>.
Hi Tech are there any particular areas industries or products worthy of any callout or elaboration at all.
Hey, Joe.
It is I would say, it's primarily in heavy duty heavy duty tools and mechanisms industrial the industrial area.
And any particular industry sector or anything that stands out.
We're working with a wide range of industries.
Okay.
On the March.
Quarter call you thought that the opportunity for Jackson gears and its synergies was still in transition.
But there would be tangible progress in Q2, but with the bulk of the benefits kicking in for Q3 can you provide a status update do you feel this progression of timing is still on schedule.
I would.
Joe can give you more specifics again as well, but I would say, it's probably more third quarter and fourth quarter.
That we will be at or where we would expect to be but Joe you can.
You can target.
Yeah, as I was saying a little bit earlier, or we were saying a little bit earlier, we really got caught up in some input squeeze for lack of a better word in Q2.
Material cost increases.
Some labor issues and also you know.
It's a fairly complex supply chain for high Tech and we do well we do lots of we're very vertically integrated we don't do everything and.
There are a number of outside processes required for us to get the tools complete and our suppliers have struggled.
To meet our timelines and hit our target.
Pricing, so that definitely slowed us down I don't know that there was anything that could've been done about that we are expanding our base of suppliers in fact in some cases, even considering bringing some things back in house. So.
To Richard's point, I'd say, we're probably a quarter behind where I'd like to be we have made progress, but we're probably a quarter behind where I thought we might have been if you had asked me that question five or six months ago.
Mhm.
No.
And then on the aerospace.
Your press release said this and I think he was probably just written before this week's news, but boeing's large 787 Dreamliner inventory has just been cleared to begin delivery. This week and American Airlines took its first delivery yesterday.
Production is expected to begin to ramp up in the coming months last quarters.
Do you have tools that are approved and are being used in the production of 787 or the 787 sub assemblies.
Go ahead sure Jeremy Yeah, we absolutely do it is not.
It is not a major part of our.
Sales it is there.
And honestly I'm not 100% sure that full production of the 787 actually halted I know that they werent up really didn't play.
Right.
They cut it to five they would cut it down to five I mean, it was yeah.
No what.
I'm not even sure what full production is maybe its not 50, it's probably 10, but in any event.
Yes, we sell and we build that we helped build that aircraft with our tools, but.
It's not a big piece of the pie I mean, the 737 Max is the.
That's the product I mean, that's that's the one that would have a significant impact should that come back.
Back online to the way it was.
And are you beginning to see more order activity on your 737 tools.
Not really I mean, it's got a little bit, but not yet no not really I mean, it's a little bit but not enough to make a difference.
Just.
Go ahead Andrew.
I think it probably needs the.
Right.
Inventory of all the airplanes sitting on the in the desert to be brought down as well as of course the.
Chinese to recertify.
Yeah. So you know, while we don't have a crystal ball I would point out three things that.
That are publicly available.
That you don't need to hear from us that can help you get a sense of where that's headed one you just alluded to with the Chinese approval second would be getting the inventory cleared out and and the third is when they're related.
From the 30 a month they are building now to the mid fifties, which is where they were you know before the crashes that before the pandemic. So you guys read what we read when we read it we don't have any advanced node really frankly, no more advance notice then the public does on when those things are going to have.
But when.
When you when you read about changes in any of those three items then you'll know as much as we do about what happens next.
Right.
On the prior call there was approximately $3 million or dollar of share a little less.
And various tax refunds coming to the company over the course of this year and next.
And about <unk> <unk>.
I think it was 1.35 million. Please correct me if I'm wrong was a 'twenty 'twenty tax your refund for your NOL carry back.
And around or a little less than $2 million.
It was for the employee retention credit you thought wouldn't come in until 2023.
What's the current visibility on the timing and receipt of those two cash.
Cash payments.
We did receive the first refund the million three I can't tell you exactly what month that happened, but it was some time since the end of Q1 <unk>.
And the 2.028 million, which is a refund for 'twenty, one which is driven by the credit.
Well, it's in various pieces.
We've as we received a small.
Portion related to one one jurisdiction, but the vast vast majority is.
We're still waiting for its 2000 Twenty's Stillwater assumption.
Okay, and the breaking that down the amount that was already received for the 2020, while you couldn't recall what month it was.
Is it in Q2's numbers and balance sheet or is it something that's yeah yeah.
Mhm, Okay. So that's it that's an important part okay.
And the amount that remains.
The vast amount that remains.
I would expect until 2023 is approximately how much.
Still approximately 2 billion, a little less million nine someday.
Okay, we'll call it we'll call it a million nine to be conservative right.
Regarding potential acquisitions on the prior calls.
You said you were particularly interested in opportunities that might become available to further expand the company's gear business.
Can you update us on if you are seeing opportunities to pursue that as of yet.
Richard you want me to answer.
Yeah go ahead yeah.
Opportunities abound, they're everywhere.
But I'll speak for the team, saying right now we're focused on integrating.
Jackson and this is just my opinion until I'm comfortable that we're fully integrated.
I think we're going to sit on the sidelines and I don't think we're going to Miss anything.
Our survey of the landscape. There is there will be deals for us when we're ready.
There's just there's a it's a target rich environment.
Once we get to that.
That point.
Great.
And then regarding your mention on competing with newer battery powered cordless products can you provide us an update and some more color on your development hub or incorporation of others advanced technologies into your tool platforms to compete and perhaps a color.
Around the prospective time range in which these.
<unk> technologies would be integrated in part of products introduced by P&L.
Go ahead Joe.
I don't know that I want a tip, our hand, frankly, because some of these are clearly competitive markets and and I don't really know who is listening, but we continue to evolve our our analysis of those things and everything is still on the table, but when we have some.
Nothing to announce we will but for strategic reasons, I, frankly don't want to say more than that.
Okay. I mean, usually when you guys have had new products that you've introduced and all that hasn't been made via Investor press releases.
Generally had to dig it out and find it on the web and.
And in in <unk>.
Areas corners of the web for from the trade press.
I've got two investors.
Yes, I think should we make what I consider a significant splash.
In battery operated tools I'm I'm pretty certain we're going to make a big deal about it but I really don't want to say, we don't really want to say, what we're up to at the moment.
No that's completely understandable, thank you and.
That's all I have for you.
This quarter you answered a bunch of the rest in the call. Although if you have the share count number that we can't see until the 10-Q, because you don't actually put it in your press release.
That would be helpful.
Yeah.
$3 million 194699 shares.
Yeah.
699.
Awesome and.
If theres any.
<unk> you might give to a little bit more time gap between your press release and the timing of the conference call.
That might be somewhat of an age because it's just you know very short turnaround time to.
Do any analysis or incorporation, especially since you don't provide breakouts that we find in the 10-Q and until afterwards, because you don't do this 10-Q concurrently.
I don't know if you could do the 10-Q concurrently that would be helpful or provide a little more time between the start of the conference call and the timing of your.
Press release, but.
Just to Investor suggestion.
Okay.
Thank you Bill talk about that for sure.
Alright, thanks, guys.
No.
No.
Okay, so stay well.
Thanks.
Thank you.
And once again that starboard if and when it would make a question.
And it appears we have no further question cause I turn the conference back over to the company for any additional or closing remarks.
Thank you all for your time today and.
We look forward to our next phone call with Q3's results.
In the next coming months, so stay stay healthy and well everybody and thank you for your time today.
And that will conclude today's teleconference. We do appreciate your participation you may now disconnect.
Okay.
Okay.
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