Q4 2022 P&F Industries Inc Earnings Call
Speaker 1: The daddy died
Speaker 2: We're gonna be
Speaker 3: Although I haven't gotten a reply. January 28, 27.
Speaker 4: Good day, everyone, and welcome to PNF's Industries 2022 Earnings Call. Today's call is being recorded and now at this time I'd like to turn the call over to Richard Goodman, General Counsel. Please go ahead.
Speaker 5: Thank you, operator. Good morning and welcome to P&F Industries 2022 year-end conference call. With us today from management are Richard Horowitz, Chairman, President, and Chief Executive Officer, and Joseph Molino, Chief Operating Officer and Chief Financial Officer.
Speaker 5: Before we get started, I'd like to remind you that any forward-looking statements discussed on today's call by our management, including those related to the company's future performance and outlook, are based upon the company's historical performance and current plans, estimates, and expectations which are subject to various risks and uncertainties.
Speaker 5: and could cause the company's actual results for future periods to differ materially from those expressed in any forward-looking statements made by or on behalf of the company.
Speaker 5: These risk factors and uncertainties are described in today's press release under forward-looking statements as well as in our most recent SEC filings, which you can find on the company's website including our 2021 annual report on Form 10-K , our quarterly reports, Form 10-Q , and other names.
Speaker 5: reports will be filed. 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.
Speaker 5: I would also like to remind all participants on this call that, as we have been doing for the past several conference calls, with respect to the question and answer portion of today's conference call, the length of the questions from any particular stockholder or other caller, together with management's responses, are limited to 20 minutes. Additionally, the questions that are being asked are not being asked.
Speaker 5: Please be aware that during the question and answer session, management will only answer questions directly related to the company's 2022 results of operations and financial condition.
Speaker 5: which such information was disclosed in the press release published earlier today. We must insist that you adhere to this procedure. Management will not be entertaining any questions that go beyond the scope of this call. And with that, I would now like to turn the call over to Richard Horowitz. Good morning, Richard.
Speaker 6: Good morning, Richard. Good morning, everybody. Thank you all for joining us this morning to discuss P&S results for the 12-month period into December 31, 2022. I hope all of you are doing well as this country and the world continues to face the ongoing economic pressures and geopolitical crises in Ukraine. We pray for a peaceful end to that conflict and a soft landing for the economy.
Speaker 6: I would like to direct your attention to the company's press release that was released earlier today, which includes the company's December 31, 2022 balance sheet, statement of operations, statement of cash flows, and a discussion related to the company's results for the year ended December 31, 2022, and how these results compare to 2021.
Speaker 6: Further, I wish to highlight a number of key factors that impacted our 2022 results.
Speaker 6: The Jackson Gear business acquisition completed during the first quarter was one. Number two was a weaker customer mix and an increase of obsolete and slow moving inventory charges at high tech, which never negatively impacted our gross margin at high tech.
Speaker 6: Economic uncertainty, which we believe is causing and is likely to continue to cause a reduction in consumer spending going forward.
Speaker 6: And lastly, persistent supply chain delays amid and as well as volatile pricing.
Speaker 6: Finally, in order to make better use of everyone's time, yet be mindful of the purpose of this conference call, I would like to remind you all the following. First, as we become our standard practice, we will move directly to a question and answer session and not be state what is already in our morning's press release.
Speaker 6: Secondly, please be aware that we will only be answering questions directly related to the company's full year, 22 results of operations, and financial condition. We must insist that you adhere to this procedure as which could have been stated earlier.
Speaker 6: And finally, please be mindful of the 20-minute time limit as previously noted by Rich Goodman as well.
Speaker 6: And with that, we would be happy to answer pertinent questions that you may all have. Operator, I hand the call back to you.
Speaker 4: Thank you. If you would like to ask a question, simply press the star key followed by the digit 1 on your telephone keypad. Also, if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star 1 at this time. We'll pause for a moment.
Speaker 4: And once again, press star 1 to ask a question or make a comment.
Speaker 4: We'll first hear from Andrew Shapiro of Lawndale Capital Management.
Speaker 6: Good morning, can you hear me okay? Yeah, we hear you fine.
Speaker 7: Great, thank you. So first off, it would have been with all the things that flowed through this fiscal year of all the fourth quarters that you've had and I've sat through and been really helpful. Had you guys broken out the fourth quarter, don't you do that for the board at your quarterly board meeting?
Speaker 6: No, we don't do that, Andrew. If we did, we would be happy to present it out as well. It's not required by the SEC for any company whatsoever. I understand. And it requires a lot of work on our part, and we have a LEAN staff, and we appreciate your comments, and we've noted, but...
Speaker 6: We just haven't been able to do it. I apologize. And internally, you don't analyze how the quarter was versus the prior quarter.
Speaker 6: You want to continue as the rest of it?
Speaker 8: Andrew, I'm looking at all the numbers every day all the time. So obviously, Richard and I have a feel for the business as do the subsidiary financial people. It just, as we've said, it's an additional burden. Not that many companies do it. We have a lean staff and we just...
Speaker 7: really just don't have the time to do it. Okay, well, I mean, I'll move on, but I differ on the view that not many companies do it. Most do break out the fourth quarter. I know it's not required. Large companies, certainly, but companies of our size, I would say not. There are so many companies your size that are public, so that's...
Speaker 7: up some customers because I do note
Speaker 7: that in the automotive and retail space, fourth quarter, which I was able to back out, the fourth quarter revenue numbers were down from a prior year, and I'm wondering what you might attribute that to, if it isn't a lost market share or anything with going up those price increases. It's not a lost market share, for the most part.
Speaker 6: It's really, it's just pricing and the economy and all that good stuff. It's nothing really more than that, unless Joe wants to add more to that. But I will say that the first quarter we've noticed an increase in that business. Thank you for your time, Chris.
Speaker 8: yeah Richard is right which one the automotive the automotive yeah okay great okay
Speaker 8: Go ahead. Go on, Joe. Yeah, as I was saying that it's difficult to ascertain changes in market share because there's so many players and we really just don't have that access to that data. You know, it's a little hard to tease out because as we were making the price increases, the market share is a little bit more difficult to determine. So, yeah, as I was saying that it's difficult to determine changes in market share because there's so many players and we really just don't have that access to that data.
Speaker 8: What we were seeing retail sentiment consumer sentiment also fall off. So it's really hard to split out what might be a fall off and share. Uh, versus just the general economic situation.
Speaker 7: Well, I would think you are the OEM provider, you're making the private label brand for Home Depot, and that would seem to be the promotional or cost leader for Home Depot and in tighter times.
Speaker 7: you know, the progression often is towards the private label products rather than
Speaker 7: the premium priced on the brands.
Speaker 7: What do you feel is going on in that retail line item which had a sizable drop off year over year?
Speaker 8: Well, certainly, there's a number of things going on. Depot has chosen this probably goes back a couple of years, but there and I don't know when the last time you were in a Home Depot was, but there was a time when our tools were fairly prominently displayed.
Speaker 8: in what they call the tool corral or the tool crib. For the most part, DEEPO has moved those tools out of the tool crib in a separate aisle. So if you're looking for tools, you're gonna go and you're not gonna find ours where all the other tools are, especially the battery operated ones. So I think that's had a negative effect on things and that's Home Depot's decision.
Speaker 8: And as I said, we saw a change in retail sentiment.
Speaker 8: Even in even in Amazon on the on the automotive side, so a number of factors Couldn't really point my finger at any one in particular and then certainly the price increase There's certainly some elasticity there which can't be ignored
Speaker 7: So do you feel here we are near the end of the first quarter and I know you don't get a lot of visibility other than what you know you're shipping etc. But do you feel that the trend is still a headwind and could be for the rest of the year?
Speaker 6: I don't think we would have that clearance. We wouldn't have that right. We wouldn't have that vision. Nobody does in the world You know, especially in these times the economy But what we can tell you is that the first quarter? Are rebounded somewhat which is one and one other one other. I'm sorry Richard go ahead
Speaker 8: Okay, one other comment spray guns, which are not an insignificant portion of the. Depot line probably yeah. Or the brunt of the of the fall off. As we've seen those were being heavily used during coded.
as we've discussed, and that probably, that time has passed for that major bump in demand. So that's probably some of it as well.
Okay, and on the automotive side, is that, I think Richard, you intimated that things have picked up again back there. There's not any particular secular trend or headwind going on there. Is that correct? Yes, that's correct. I mean, I would say Andrew.
that it's definitely gotten better. I don't think it's as good as it is. I know it's not as good as it was a year ago, but it's definitely, definitely better than it was.
Sure. Now last quarter's call you guys discussed, I'm still in Florida Pneumatic, now moving to Aerospace, how Florida Pneumatic's revenue and margin mix was favorably impacted.
by rebounds in the aerospace product line, and that was both in commercial and defense.
And that made up or kind of filled some of the hole that was created when the Boeing business, especially with the 737 MAX grounding and the 787 production issues that the production rates and the demand and use for your tools slowed.
Slowed greatly and and there was this hole and you had this new business in aerospace that was filling it up And on the last call you had said that Boeing
had only recovered to about 50% of their pre-pandemic or pre-grounding kind of consumption rate.
So I presume with Boeing's commercial production rate, we're nowhere near former levels.
Your business with them similarly is not fully recovered, but has it migrated up yet from the approximately 50% level you cited, which was almost six months ago, given this was fiscal year end and there's a longer timeline for your reporting? It's basically been about the same. It goes sporadically, but I would say we're generally maybe slightly up over that, not dramatically, but we...
We've experienced a lot of other business in defense and aerospace to counteract that.
Right. So then when Boeing's already publicized that their production rate in 24
is going to step up pretty sizable. They're opening another production line for the 737 MAX and hiring 10,000, most of which are production workers. Again, 2024. Presumably all those people are going to need tools. Do you feel you're well positioned?
that when they have this increased demand, PNF is going to get your Jiffy line and other lines are going to get their fair share.
I do Joe, how do you feel? Okay. Absolutely. We have a significant market share. In in the installation. Tools segment of the aerospace market worldwide.
And we absolutely are going to get our piece of that. And as we've said, we'll be right back.
Maybe in a prior call, I can't remember, ramping up a production line does provide, in addition to just the monthly rate going up, supplying that line at startup, gives you also a little bit of a line fill as well. We don't know when that is, 24 is what they're talking about, but right now they're at the same level of production they were six months ago.
investors and prospective investors can, you know, kind of look over the horizon and get a feel for other factors that might influence the company's revenue demands.
Are you asking us to list our customers? Is that what you're asking us?
I'm asking if you can name a few platforms or program types. For example, Boeing's Apache line, which they just got a big new contract on. Things like that.
Joe, can you answer that? Our tools are used to assemble Apache helicopters, if that's your question. But to get a little more granular, all military aerospace production is used to assemble Apache
we are involved in. We've got insulation tools, drilling tools, we're selling floor control tools. I mean those are kind of the big three areas in production of...
Planes, helicopters, all that stuff. We're in the middle of all that, especially in North America. But with respect to Europe , we're now starting to really make some inroads there with Airbus and their tier one suppliers and other military folks over there throughout the European continent. So if you want to take a look at...
aerospace production in Europe , that might be a hint, just military production in general in North America. We're involved in all that stuff.
production in Europe , that might be a hint, just military production in general in North America, we're involved in all that stuff. We're everywhere.
And so you're now into Airbus.
Yes, we are in there very low. Yeah, but we're in there, but not not. Not in a way you would really need to.
But yes. Well, but you weren't before the pandemic and it was, you know, it's a great opportunity that we all want. You know, everyone's talking about this company. So excited about what our.
head of European operations has been able to do. He covers a lot of ground and yeah, we're very excited about what's going on there right now. Are your tools used in drill manufacturing as well?
I don't know the answer to that. I don't know. All right.
Excellent. On the high tech side, okay, you made a mention that part of the margin hit, which also was low margins, a big drop off in gross margins in this quarter, which makes me feel like this quarter was where there's some kind of charge or reserve hit or something that occurred.
Can you help quantify about how many dollars and margin and or margin points resulted from what is arguably a non-recurring write off of obsolete products or slow moving inventory? Joe, I'll let you answer that. We have a.
What happened towards the end of the year is we had several substantial customers get out of a couple of lines of business, sort of coincidentally. And that and some of the usual wind down of very things as we're trying to move from one market to another market.
as we're spending a lot of time reallocating resources and looking at
emphasizing different markets, there was a several hundred thousand dollar charge related to the inventory that was slow moving and we felt that that was necessary to get that in line with its true value. Can you be a little more granular when you say several hundred thousand? No, I cannot. 4, 3, 2,
That's all I'm going to say. Okay. It was substantial. Yeah. I mean, if someone wanted to understand the actual ongoing recurring margin for the company, for the division, for the quarter, knowing the amount of write-off, that's non-recurring, you know, helps someone come up with what is the ongoing run.
All I can tell you is it was several hundred thousand more than typical.
And as your office adds, it may give you comfort to know that margins have been...
very nicely improved this year.
Because they've been well aware of this. Oh, yes. I mean, they are very nice. They were very improved for the first through third quarters. And then all of a sudden, back to legal digits. Yeah, I'm talking about 23. I'm talking about 23 or back up to where they are going to be. Yeah, it was. You know, I'm not denying that it was a, I'll call it a one time event, but I can't.
There's no number for the 1 time event if you're following me, we would just reserves every month. But I can, we're not looking at anything like that. In the foreseeable future, and I think we'll show Q1 have a nice rebound in margins. Okay, and.
And have shipments to the major OEM customer you've referred to in last and prior calls continued or increased its level of activity into the new year.
Yes. Yes. Okay. And you said you weren't there yet as a Q3, but beyond this major customer, has the OEM engineered solution segment encountered enough additional success that there are any particular areas, industries or products now worthy of a call out and elaboration?
I mean, the only thing I would call out Andrew is we're making a significant push. Through several customers in the rental market for industrial tools and having quite a bit of success. Now I can't tell you exactly.
where those rental tools are going because it goes into general distribution. So that is happening and we're pretty happy about it.
Okay. And it looks like the ATP weakness that you had.
In the earlier part of the year, that has subsided and now it's stabilized and maybe even bouncing.
When you say weakness you are could you be more well
This is ATP. Q3, there was weakness in certain industrial markets and customers at ATP. And it was facing some headwinds, but it just looks like things have sequentially gone up. And I don't know if that's continued into Q1 or not.
And the only thing I'll tell you Andrew is ATP is becoming an increasingly less
The other thing I'll tell you, Andrew, is ATP is becoming an increasingly less important part of high-tech.
You know, it's about, it's up and down kind of a thing, but it's not having a major impact. I'm going to remind you, you have two minutes left, so please just be mic'd a little bit. Yeah, well I'm glad you're on the stopwatch there. Thanks for watching and I'll see you in the next video.
PTG. Okay, the last call you thought that the opportunity for Jackson Gears and its synergies was still in transition. There'd be tangible progress this quarter in Q1 with most of the benefits in place for I think it was the entirety of Q2. Is that still what's on the plate or do I have that wrong?
The last call you thought that the opportunity for Jackson, Gears and its synergies was still in transition. There'd be tangible progress this quarter in Q1 with most of the benefits in place for, I think it was the entirety of Q2. Is that still what's on the plate or do I have that wrong? Dead, y'all.
Yeah, I think no, you don't have it wrong. We're excited about how Q1 is panning out and we've got some, you know, exciting things we're working on for the rest of the year. So, yeah, I think we're pretty confident. Q1 year over year is going to be a very nice improvement and we expect.
you know, to go from there. So no, you're not wrong. Okay. All right. And I saw that one point, you know, you got the big bunch of the ERC money in, in January , not in the fourth quarter. You got some cash in the fourth quarter, but that's a big slug of cash. What's the plan on that? Is it going to be initially an immediate pay down on the higher interest debt now? And,
or is it, you know, what are the plans?
Joe, I think we have to pay down our debt.
Andrew, it's a lockbox, so when it comes in the door, the bank takes their money and pays down the debt. I don't really have much of a choice.
So when it comes in the door, the bank takes their money and pays down the debt. I don't really have much of a choice. Okay.
Well, that's fine. It's high interest, so to get that paid down is not so bad anyway.
It's high interest, so to get that paid down is not so bad anyway. Our debt is going down as well.
Good. And the CapEx plans for the coming year that you've given some guidance on, which are still kind of at elevated levels, has the money the other CapEx that was spent this last quarter that you gave us guidance on,
Was that just a partial payment for equipment that is still to be delivered, or did that equipment get put in place and you're getting more equipment and automating even further? Yeah, most of the equipment has been delivered, but getting some more in the next 30, 60 days. The stuff that's been delivered is about 30 days away from.
You know, running well and productively at our plan. Yeah, I would just add to that. I don't know that we would anticipate the real benefits from the new equipment until Q3. They'll be coming online in Q2. And certainly we'll see some benefit, but not what I see.
in terms of the way of significant contribution to results until Q3.
Some of that's in Jiffy where your increased aerospace business is going to start hitting some capacity utilization finally? Correct.
Great. All right. I think I'm out of time. Thank you. Thank you for your concern. Interesting concern.
And as a reminder, star 1 to ask a question. We'll pause the moment.
It appears there are no further questions. At this time, I'll turn the call back over to our presenters for any additional or closing comments. Thank you for joining, and thank you for joining us on this edition of Our Current Time.
Okay, thank you all for.
for being on the call today and we look forward to hearing, speaking to you on our Q1 call in about 60 days. Thank you so much for your time today.