Q3 2022 P&F Industries Inc Earnings Call
Ladies and gentlemen, you are currently on hold for today's Q3 'twenty to 'twenty two earnings call.
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Good day and welcome to today's Q3 2022 earnings call. This conference is being recorded at this time I'd like to hand, the call over to Richard Goodman. Please go ahead Sir.
Thank you operator, good morning, and welcome to Peanuts Industries third quarter 2022 conference call.
Today from management are Joseph of Richard Horowitz, Chairman, President and Chief Executive Officer, and Joseph Molino, Chief Operating Officer, and Chief Financial Officer.
When 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 Companys future performance and outlook are based upon the company's historical performance current plans estimates and expectations, which are subject to various risks and uncertainties and could cause the company's actual results for future periods to differ.
Really from those expressed in any forward looking statement made by or on behalf of the company. These risks. These risks factors and uncertainties are described in today's press release under forward looking statements as well as in our most recent SEC filings, which you can find on the company's website, including our 2021 annual report on Form 10-K forward.
Forward looking statements speak only as of the date on which they are made and the company undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information future developments or otherwise.
I would also like to remind all participants on this call that as we have been doing for the past several conference calls with respect to the question and answer portion of today's conference call. The length of the questions from any particular stockholder or other color together with management's responses are limited to 20 minutes. Additionally, please be aware that during the question and answer session magical only.
Answer questions directly related to the company's results results of operations and financial conditions relating to the three and nine month periods ended September 32022, we must insist that you adhere to this procedure management will not be entertaining any questions that go beyond the scope of the call and with that I would now like to turn the call over to Joseph Molino. Good morning, Joe. Thanks.
Rich.
I wanted to point out in.
In the table in Yesterdays press release, the value for the change in operating lease liabilities for the nine month period ended September 32022 was shown incorrectly as $7.032 million. The correct amount of the change in operating lease liabilities for the nine months period was actually 703.
Dollars. This typographical error did not affect the total is presented within the statement of cash flows further this typographical error does not affect the company's September 32022, consolidated balance sheets consolidated statement of operations and comprehensive loss comprehensive loss income or the consolidated statement of shareholders.
Equity a corrected press release was sent out shortly before this call I will answer any specific questions regarding this type of graphical air during the Q&A session. Thank you with that.
I'll hand, it over to Richard Richard.
Thank you rich and thank you Joe and good morning, everybody. Thank you all for joining US this morning to discuss BNS results for the three months period ended September 32022 on.
On a side note I hope, you're all doing well as the country and this world are dealing with economic pricing pressures.
Ongoing supply chain issues and the geopolitical crisis in Ukraine, we.
We pray we all pray for a peaceful enters conflicts in short order.
I would like to direct your attention to the company's press release that was released earlier, which includes the company's September 30th 2022 balance sheet statement of operations statements of cash flows and discussions related to the Companys results for the three and nine month periods ended September 32002, and the results compared to the same.
In 2021.
Further I wish to highlight a few key factors that impacted our third quarter 2022 results. Firstly, the Jackson gear business acquisition completed during the first quarter of this year.
A significant factor to our revenue growth.
Secondly, our customer and product mix of Florida Magic helped improve their gross margin while negatively impacting gross margin that are high Tech division.
Thirdly ongoing supply chain delays are continuing unfortunately.
Not quite to the extent as before but certainly continuing and lastly, recent on growing growing economic uncertainty, which we believe is causing it is likely to continue and of course the reduction in consumer spending.
Finally in order to make a better use of everyones time here today, yet be mindful of the purpose of this conference call I would like to remind you all of the following.
Firstly as we invest for the several previous conference calls has become a standard practice, we will move directly to a question and answer session.
Restate what is already in this morning's press release.
Secondly, please be aware that we will only be answering questions directly related to the company's results of operations and financial condition really into the third quarter of 2022.
We must insist that you adhere to this procedure management will not be entertaining any questions that go beyond the scope of this call.
And finally, please be mindful of as Joe average Goodman mentioned of the 20 minute time limit for quota as previously noted, which we plan to enforce as always to the extent shareholders or other calls with partners.
And then questions excuse me have multiple questions. Please complete your portion of the Q&A session within a 20 minute limit and then we will move on to the next question here.
And with that we will be happy to answer any further questions that you may have operator, you may open up the lines. Thank you.
Thank you, Sir ladies and gentlemen, if you wish to ask a question at this time. Please signal by pressing star one on your telephone keypad. Please make sure your mute function on your phone is switched off day at all your signal to reach our equipment. If you wish to cancel your request. Please press star two again it is star one to ask a question.
I will now take our first question from Jimmy <unk> of the land management. Please go ahead.
Hi, Fellas.
On the call for a while but wanted to ask you a couple of questions about the <unk>.
The capital allocation strategies at PNM.
Have a decent balance sheet and yet you're declaring special dividends after a quarter, where you didn't make any money.
Whats the philosophy and doing a special dividend.
As opposed to if youre going to do a dividend just to a recurring dividend or a nickel per share per quarter.
Joe Why don't you why don't you answer.
Sure.
You know a lot of factors go into.
Whether the board wants to return cash to shareholders. Obviously some of them has to do with the balance sheet. Some of that has to do with our expectations on a go forward basis.
How much were borrowing relation to our availability.
I think we are in this quarter trying to walk a balance between.
Certainly wanting to return money to shareholders, while at the same time, having an eye towards.
Relatively uncertain economy.
While we feel pretty good about our operations.
We are affected by many many things.
That are outside of our control.
So while we felt comfortable with things at the moment, which is why we returned five cents a share.
I don't think the board with quite ready to commit to a quarterly dividend as of yet.
And we will review that every quarter, it's entirely possible that there still could be a relatively weak economy, but we may be comfortable enough with our our cash flow situation to still have a quarterly regularly quarterly dividend but.
The board will meet on that in the next quarter and make that make that decision.
Yes.
I'll, just say to answer that.
Our focus is returning to our stockholders.
And so that's what we're trying to do here.
Good thing we're doing.
And what we call it or what some people will consider it to be.
Proper for whatever their reasons are we understand but having said all that we're just focusing on the quarter and the facts and around the world swirling around the soil and we're just trying to be prudent about it but we still want to focus on giving back our stockholders, because our cash flow and our balance sheet certainly could afford that.
Alright, Thank you guys.
Logic logically with it with a tremendous discount to book.
A one shot dividend doesn't do much deal with the ability to if you are looking to create value for shareholders longer term to be able to.
Reduced your share base has an incredible discount to tangible book.
It would seem logical as opposed to special dividends to be buying back stock as opposed to <unk>.
Getting no credit for a special dividend.
We understand we understand this is by the way. This is the second one we did one last quarter as well, so but yes.
And we will review it right.
Jamie we hear you that that discussion regarding buybacks is absolutely on the table with the board.
We're not ignoring that option.
But as of right now where.
This is the road, we're taking but that is discussed every every quarter at the board level I can promise you that.
Okay, and as you look forward with with the balance sheet that you have you're a small company with with a large expenditure to be public you've got to be a larger company. So you've got to make acquisitions. What are the areas for you that are going to be most desirable where you get the most the biggest bang for the Buck where there are synergies involved.
And.
What kind of multiple or EBITDA, you're looking to pay in these areas.
And lastly, with.
It's been kind of a checkered past as to making acquisitions, how do you ensure that.
Moving forward. The acquisitions you you do are going to be accretive immediately and steadily.
Those two a little bit more in the cyclicality, where sometimes good sometimes bad.
You asked a lot of questions there.
Or.
Would it be able to answer them, but I'll tell you. What we think we are always actively looking at acquisitions and we continue to do that we did one as you know earlier this year as Jackson tier one so we're looking at acquisitions that are pointed in our.
Is that fit with our existing businesses without looking too to go into.
Making.
Things are not.
Rallied not within our sweet spot of a weed and our expertise. So that we do we don't look to buy things that are in the clothing business or in the office supply business. We're looking at things directly related to our businesses our ancillary businesses.
And our customer base. So that's what we look to do.
We've made a few acquisitions in the last couple of years. This is our most recent one.
This was a challenging one.
Most of them are because we're not generally just picking up a company and we're generally.
Putting them into our divisions and that's what exactly what we did here as well so putting Jackson gear into Hy Tech's Pte group and enhance the.
The revenue and but the moving parts are moving it into the factory and getting used our customers are getting used to it.
Product.
Eddie secrecy that we have a manufacturer which is slightly different than what we did before it takes time and it's taking a little bit more time than I guess, we thought it would take.
But we do expect that by the second quarter of next year, we should be at at what we consider a very good good return basis for that for that business.
And we continue to look for other companies I don't know if Joe if you want to add anything further to that or if we've answered your question Jamie.
Another part to your question. Please please state it again.
Okay.
I'll do the first part.
You had mentioned an acceptable return what is that level.
Well it's.
We look we look at at least as good a return that we get an order on our other businesses. So we would look for I mean, I don't know if youre asking this kind of a question, but like a 15% net to the bottom line, 10% to 15% kind of a number that's what we look to do and if it is not in that range. We don't go further.
Joe.
Just to add a little bit.
So we're looking for niche tool company.
Areas of the tool.
The business that we're not currently satisfying that we that we could add.
At our knowledge in National and international reach and I think the acquisitions of jiffy and the acquisitions of Air Cat a few years ago. The acquisition of <unk> in Europe , a few years ago, those all fit into that category and there are other things like that out there.
So that's one side of it and then gears, we see as a very.
Target rich environment for us.
Right now we've been adding to the facility, we've got and as Richard said I think unfortunately.
The squeeze we got caught in here, we made one acquisition.
In gears just ahead of a pandemic and then we made another one just ahead of a real squeeze in terms of.
So labor suppliers here in the U S and a dramatic increase in the cost of materials.
Which has slowed down that integration, but.
By our internal analysis and I'm, just parroting, what Richard said, we feel very comfortable that.
Even with those serious headwinds we think we are in the right market and we now have the right.
Capabilities across a large range of gear style.
To hit our stride in Q2.
It's just taking a heck of a lot longer.
Nobody foresaw.
Some of those things going on but we still very much believe in that business. We still very much believe that it's a target rich environment nationwide.
I would be expecting you'll be seeing more there and then you know in terms of acquisitions and returns I would add what we're really like to do is pay a fair multiple to the seller, but add value either in some sort of consolidation or additional reach or.
Additional customer base. So that you know two and two can be five.
That is that is the goal to on paper pay a fair multiple but have it effective multiple that's quite a bit less that that's the idea.
Excellent. Thank you Carlos.
Yes.
Thank you as a reminder to ask a question, placing all by pressing star one.
Our next question comes from Andrew Shapiro from Lawndale Capital. Please go ahead.
Yeah, Hi, Thank you on.
On the prior call there was approximately $1 9 million or more than 50 cents a share.
And a tax refund for the 2021.
<unk> employee retention credit coming back to the company.
Over the course of the next 12 months, what's your current visibility on the timing and receipt of that cash payment.
I'll, let Jos.
Through the government does not tell us when we're getting a check.
Right, but we had seven calls Andrew I think we said in our last call. We expected by the first quarter of next year, which is still what we believe is what it is but the government will send it to us when they send it to us and as you remember I'm sure. We got a check from the government last quarter.
At some point to my exactly sure when that we didn't expect to be getting at that early date and they came in earlier. So it's it's good it's up to the government.
Okay, well, that's a nice amount of money in your release says you are spending $1 million for Capex in the in the current quarter. This is a bit more than normal can you discuss the benefits and your payback expectations.
The bulk of this capex.
Sure Yes.
I'll, let Joe Mitchell.
Bear with me one second.
I'll, let Joe answer, but let me just tell you during the pandemic our capex is dramatically lower than what is normal. So I mean, I think if I remember correctly 400000 seems to ring a bell with me.
Last year with you before but dramatically less and so now its getting back more to normal times, but I'll, let Joe go through it but.
That wouldn't be doing right now with a few of them.
Matthew it's almost a million bucks or really.
Lay ups for us in very very good, but I'll, let Joe give you. The details go ahead Joe.
Capital expenditures were forecasting at the moment are related to.
Automation.
And.
Sort of creating capacity in an environment, where it has been very difficult to hire employees.
Skilled machinist, both in cranberry and in.
Our punxsutawney and Reno or Carson city, so what we've decided to do to supplement our efforts of hiring is.
Getting equipment that can run on unattended for hours, if not days at a time.
That allows.
<unk> to work on other machines or just frankly add additional.
Throughput that allow us to ship more than a month to our issue has been more about ability to get product out the door due to limited resources, then that orders orders have actually been quite quite solid this year all around.
So it's.
It's been more of a struggle because we haven't had resources internally and the outside resources. We have used to supplement our also strained. So there is a lot of good things that are going to come you asked about our return our minimum return on any sort of capital expenditures in excess of 30% and that's probably.
After cutting in half the estimates so we feel very good about the things we've got on the table and <unk>.
Expect those to generate some benefits for a good chunk of 2023.
Awesome, Okay, and while still focusing here on the cash and the cash flow generation I note that this quarter's positive EBITDA I think is the best you've had in yogurt.
Over two years and most of that.
This is not necessarily the revenue growth.
Margin expansion, so I wanted to.
Get that get a little bit better color on this.
First off in.
Florida pneumatic you talk about.
A lot of this is due to.
The improvement in the sales mix being the aerospace line is starting to come back.
And it was in both commercial and defense related customers can you expand on which programs or types in each commercial and defense.
That are creating the return of some of your aerospace demand.
Sure go ahead Joe.
Sure. So as you know we've discussed Boeing is a major customer, but as we've said many times.
We have commercial and aerospace customers throughout the U S and the world.
And.
While Boeing is.
Slightly improved.
I'm sure you're reading the same stuff that we are that they have not increased their their monthly production levels.
For a while there is certainly better than they were 12 months ago, but they're nowhere near where they were prior to the pandemic and there were recent articles, saying they won't get to those numbers in 'twenty 'twenty four 'twenty five so it has really been a lot of other things.
Other military projects that were tied into and commercial.
Aviation in general outside of Boeing and Airbus.
So those were locked into a lot of those programs, we've got great offerings for those programs.
So.
The jiffy businesses and improved our industrial industrial businesses, having a very good year.
And those are generally our two highest margin categories. So EBIT.
Given us a little bit of a falloff in automotive and retail we can make up for a lot with with.
With ash generation out of industrial and jiffy.
Yes, it looks like that and so has the level of the aerospace activity has continued into the current quarter.
Or even picked up even further.
Yes, I think Thats, a fair statement, yes, I mean, if you're kind of I don't know what youre comparing it to even comparing it to last quarter last year, but we are in a better place.
Aerospace wise than we've been in a very long time.
Mhm.
And while these other.
New initiatives to fill some of the large flat from <unk>.
Boeing if you were to provide a range of where.
Your aerospace products declined to or from the historical.
<unk> 737 grounding activity that even preceded the pandemic.
And where you are operating now.
Or would you say you are in terms of recovery less than half more than half three quarters or even closer in terms of volume shifts and overhead absorption where you were before.
Before.
The plane crashes.
I would I would think I would think we're about half would be my guess.
Any guess Jody disagree with that.
Well when you say half that back way when you say half halfway back to where we were is that what you mean.
Yeah, I think absolutely I think Richard spot on on Boeing I'd say half.
But I would also say that we.
We have a strong.
Stronger larger.
<unk> portfolio of non Boeing business than before the crashes and I'm not sure. The crashes really had much to do with that I mean, I suppose there was a temporary falloff in some aviation spending but military has grown steadily and as I said the other commercial areas, we sell into with <unk>.
No crash.
So they probably were down just from air travel being down and once that rebounded as everybody knows has rebounded pretty well that has come back. So I couldnt give you a percentage, but Richard is exactly right about Boeing but everything else is higher than it was before the pandemic.
Awesome.
Sure.
Then moving onto the other part of Florida, pneumatic where there have been some headwinds.
When in the quarter did you put in place price increases at Florida, pneumatic and was it broadly across your product lines.
Or do they have to look at the beginning in the quarter reflected the full impact over there later in Q3.
Actually it was the price increases were initiated in Q2.
Okay. Okay.
Various times into some.
Some of them going into Q3, I believe but yeah and into Q3.
But they started.
We're focused on it in Q1 in London and implemented them in Q2, I'm pretty sure I got the timing right on that Joe can confirm that and but at this point where we're.
We're pretty footwear, we are full boat on on all of those price increases.
When I go into further Richard's right. We started in April but they got layered in we had contractual commitments in some cases, an inventory that had to be run through so April through July but I think Jill is Q3 is I would say almost 100% of the price increases were in place okay.
And have you been able to maintain market share or had to give up some customers.
We haven't given any.
Richard.
Youre going to say that we.
We didn't lose any customers I would think I would say this that.
While our distribution channels are intact.
In the automotive area.
I would say we gave up some units unit sales, but I think our overall.
<unk> contribution is is the same or if not higher.
Okay.
And.
Yeah.
Did your price increases go through at home depot and two what do you attribute the decline in their reordering from its big initial stocking.
Of your new products, which occurred.
In Q2 are these products selling through and our.
Home depot, just adjusting the pace from the Frontloaded above normal initial shipment or is there a loss of product line or.
Are there things going on here.
Did they get hit with the price increase.
No.
Joe can expand on it but it's not.
It's not it's not.
Anything to do with losing any products nothing like that.
Nothing like that it's just we've been told and member.
As a vendor with probably the last in all of these things it's hard.
We believe but we are.
But they're kind of they are kind of saying that they are redoing their inventory there.
They have they overstock.
So.
Supply chain delays and stuff like that and now they are readjusting that basic.
Basically what they can come to us.
Joe My correct me, if I'm correct, but they are anything else. We're definitely correct. There's always some sort of adjustments after a launch.
I do also think that there is some softness in consumer demand.
Because we're seeing it both in the two areas, where it end user buys our tools.
And auto Tac buys our tolls directly.
Hum for themselves add add person walking at the home depot buys our tools directly both of those areas are down.
Whereas the more industrial stuff, that's being used by a corporation.
It seems to be doing just fine so I think theres, a little bit of both going on it's a little hard to.
To tease that out at the moment I think we'll know more about that as we get into Q4.
Sure and then let's move on to high Tech where.
The big bounce.
Isaly occurred regarding your increased shipments to a major OEM customer can you expand on what kind of product or use case.
These products are for and whether this level of activity has continued into the current quarter.
Yeah go ahead, Joe I forget the answer the answer is yes and yes.
That customer Joe will give you the details but yes.
That is customers continuing to order.
At a reasonably good paste fill.
Go ahead, Joe Yes, it's a customer we've had for some number of years and we've worked very closely with them.
You know I don't want to say co developing but we do work very closely with their engineering team on our product that's that's spin.
Specific to them and their needs and they've got a wide range of channels for that product and I believe worldwide. So they've got a pretty far a big reach and they.
They are doing really well with it and we're happy to be along for the ride and continue to work with them in a way.
We're anticipating that continued relationship and we think some growth for next year and beyond so we feel really good about it.
And I don't know what else today than we were in a great. We're in a good place there we think.
Yes.
We are where it's at.
Customer for quite a while now.
Have a very good management team.
They're the principle, our guy is very on top of his business and he has grown dramatically and we're happy to be a vendor to homes and we're doing our very best to keep them satisfied.
Okay.
This company had your customer has the OEM engineered solutions segment encountered additional success are there any particular areas industries products worthy of a call out and elaboration.
Go ahead Joe.
I don't know I don't think Theres anything, particularly new there that I can think of I mean, we continue to satisfy niche opportunities, but I wouldn't say there is any.
One in particular right now that doesn't mean that one could come on.
Think we've recently.
<unk> began a deep dive into that business and are looking for maybe the best places to make bad. So we might have more to say about that in future quarters, but right now where were taking the opportunities as they come.
Andrew I don't think centered around but now you have more questions, but I'm just pointing out to about five more minutes basically okay. Please go ahead, yeah. Thanks regarding the weakness in certain industrial markets and customers at ETP.
Are you seeing that continue into this quarter and what are the factors are that are providing pricing pressure from offshore suppliers here or is it just a strong dollar and what steps are you taking to better compete.
I don't really I don't know if I understand of course, you understand the question, Joe well I you know.
I think part of the issue is okay.
Okay.
There are definitely have been some cheaper imported industrial tools that are affecting that business. So.
So that is absolutely a factor.
I think Theres also.
Even though the price of oil is so high.
The what we call the turnaround and shutdown business hasn't been nearly as robust as it would be.
You re round the clock five years.
And this was the price of oil I think you would just be seeing more activity and I think some of that could be just related to that.
No.
<unk> been a move away.
Two other sources of energy I mean, I think it's I think oil is oil and gas is peak, especially oil exploration.
So I think that's a little bit of it as well.
Yeah, you know other than that general economics factors I can't really think of anything else.
So ATP is more of an oil and gas used product.
It's not I mean, it's part of the business, it's part of the portfolio.
Always asked the question of what percentage of our business. It is it might be.
20% of the business now it was probably 45 years ago.
Mhm.
Okay.
And so what steps are you taking to better compete.
Regarding the pricing pressure from offshore suppliers and the other.
You know weaknesses here or are you just emphasizing gears and other things instead, we are emphasizing the other parts of the business much more because it's a it's a dog eat dog business for the most part.
And so not that we're not not that we're not doing so because we are but it's just a much.
The priorities are more fruitful for us in other areas.
Okay.
And then regarding the gears acquisition and the power transmission group on the last call you thought the opportunity for Jackson gears and get synergies.
Well, it's still in transition, but where it was a great opportunity and that there'd be tangible progress in the quarter just completed with.
With most of the benefit is put in place over the course of this current Q4. This quarters release highlighted kind of under absorption of manufacturing overhead costs that would continue.
Into next year with progress made during this last quarter and is progress continuing to be made at least.
The answer is yes that was had been made.
And all that stuff and not at the rate and the level that we we expect Julian when it goes further into that.
It's as I alluded to earlier we.
Simultaneously with this integration.
We are seeing a quite a bit of turnover there is sort of a.
A bidding war for machinists in Pennsylvania. It is it has been a struggle to add the people we needed we.
We had had some people that we brought on right in front of the acquisition, we lost some of them.
And we've got new people in there that required training. So we lost some momentum in addition.
A number of these parts are have been processed on the outside because we don't do everything for example, we don't do heat treating and in some some grinding so.
Those firms that help out with that are swamped and so they're taking three and four times what it would normally take to get products back to us and that doesn't mean, a couple of days it means things get delayed by almost months. So it wreaks havoc with the production schedule and then lastly.
Since a year ago, and even two years ago, the cost of metal is dramatically higher than it was in <unk> and that has.
Hurt us a little bit having said all of that.
Youre running on nighttime out a nice order book.
As I said by Q2, we'll we think we're going to be in a much better place.
Yeah go ahead I'll ask one more question. If you Grant me one more question here at summit.
Go ahead sure. So can you see can you expand on the steps and the timing to address these issues and more importantly.
Kind of what what is the margin pick up or the unabsorbed cost amount to be remediated here is it meaningful that we would we see it when you report a quarter when this is behind us.
Yeah without.
I'm feeling fairly confident that unless there's a dramatic issue with the customer base or demand in Q2.
On a run rate basis, you will see a much stronger <unk> than you saw in 'twenty, three and as I said.
We've got some capital expenditures that are going to address some of the strains on the staff.
And I think by then we will probably sorted out the customer base a little bit more.
Look we had a big dump of new customers from the acquisition I think some of them are.
<unk> much more attractive than others, so there's going to be a little bit of culling of the herd, there and sticking with customers where we have.
I have a greater degree of confidence of generating generating profits.
'twenty one.
Sorry, Richard referred to 'twenty three 'twenty one that's one.
Okay. So hopefully that answers your question.
Yeah and I'll just.
Yes, I'll answer the last question here, but I'll just tell you that the change that was made at the at the top of Hi Tec.
<unk> very satisfied with that with our with our leadership.
Doing a remarkably good job for us, we're very very happy with that okay.
Great. Thank you.
You for your time and your interest.
Okay.
Thank you ladies and gentlemen, there are currently no further questions in the queue as a final reminder, I don't want to ask a question.
Thank you well. Thank you all so much for your time today.
And we wish you we wish you and your families a good holiday season, and we look forward to speaking to you with our year end results.
The early part of next year first quarter, Thank you, all and stay well and safe.
Thank you. This concludes today's conference call. Thank you for your participation that is and gentlemen, you may now disconnect.
Okay.
I wasn't sure.