Q2 2023 P&F Industries Inc Earnings Call

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Hello, and welcome to the Pea and death Industries Q2 earnings call.

My name is George there'll be a coordinator for today's event.

Please note that this conference is being recorded.

Your lines will be listen only mode. However, you will have the opportunity to ask questions towards the end the presentation and this can be done by pressing star one on your telephone keypad at anytime sweatshirt retro for any questions.

If you require assistance at any point, Please press star Zero I would expect it to the operator.

I'd like to hand, the call over to your host today, Mr. Richard Goodman to begin today's conference. Please go ahead Sir.

Thank you operator.

And welcome to Peanuts, Industries' second quarter 2023 conference call with US today from management are Richard Horowitz, Chairman, President and CEO , and Joseph Molino, Chief operating Officer, and Chief Financial Officer.

Before we get started I wish to remind you that any forward looking statements discussed on today's call by our management, including those related to the company's future performance and outlook based upon the company's historical performance and current plans estimates and expectations, which are subject to various risks and uncertainties that could cause the company's actual results for future periods.

To differ materially from those expressed in any forward looking statement made by or on behalf of the company. These risks is it excuse me. These risk factors and uncertainties are described in today's press release under forward looking statements as well as in our most recent SEC filings, which you can find other companies' website, including our 2022 annual report.

And on Form 10-K, and our quarterly reports on Form 10-Q forward looking statements speak only as of the date on which they are made and the company undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information future developments or otherwise.

I would also like to remind all participants on this call that with respect to the question and answer portion of today's conference call. The length of the questions 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 Mazarin will only answer questions directly related.

The company's second quarter 2023 results of operations and financial condition.

As disclosed in our press release published earlier today, we must insist that you adhere to this procedure imagine 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, Rich. Thank you and good morning, everybody. Thank you all for joining US this morning to discuss <unk> results for the three and six months periods ending June 32023.

I hope all of you, we're doing well as our country and the world continues to face ongoing economic pressures as well as the ongoing pricing, Ukraine and general global unrest.

We repay for a rapid and peaceful and to all these conflicts.

I would like to direct your attention to the Companys press release that was released earlier today, which includes the company's June 32023 balance sheet statement of operations statements of cash flows and a discussion related to the Companys results for the three and six months periods ended June 30 of this year and how these results compared to the same periods in 2022.

I wish to highlight a few a few key factors in our release.

Consolidated revenue declined nine 2%, however, and more importantly, our gross margin of Florida, pneumatic and Hy Tech improved three 9% and eight 1% respectively.

Total operating expenses declined 2% and rising interest rates were of course, the primary cause for the increase in interest expense.

Finally in order to make use of everyones time.

And yet be mindful that the purpose of this conference call I would like to remind you all the following and I apologize for being repetitive too rich Goodman first has become our standard practice, we will move directly to a question and answer session and not restate what is already in this morning's press release.

Secondly, please be aware that we will only be answering questions directly related to the Companys second quarter of this year results of operations and financial condition, we must assistant with here to this procedure.

Finally, please be mindful that our 20 minute time limit as previously noted we plan to enforce to the extent shareholders or other callers with questions with multiple questions. Please complete your portion of the Q&A within a 20 minute timeline and now we will move on to the next question here.

And with that we will be happy to answer questions that you may have operator, you can open up the lines. Thank you.

Thank you Charlotte.

Ladies and gentlemen, once again, if you have any questions. Please press star one anticipates sure. Your mute function is an aggregate, allowing a false glad you say what switch equipment.

Our first question basically from Andrew Shapiro colleagues for the La deal Capital Management. Please go ahead.

Hi, Good morning can you hear me.

Morning.

Okay.

First regarding Florida pneumatic if I could.

Boeing's large 787, Dreamliner inventory now has begun delivering.

Production is expected to begin ramping in the coming months.

<unk> seen an uptick in the demand for 787 tools and then of course I've got a follow up on the 730 Sevens.

Joe you can answer that question, Yeah, we were on that program.

It is a fraction of the 737 program.

But obviously any uptick in production is helpful, but as you.

As you know.

We're not selling tools per plane. So uptake no production doesn't mean, we get an order next week, so but yes.

Positive development, no doubt and as I said.

We're on that program, so right and then the 737 Max their production.

Is it now.

Predicted by Boeing.

Two really.

Ramp up and Theyre going to tool up a new line up in Everett.

How far in advance to they typically order and make demands for that since that ramp up is going to be next year.

For.

For the new production line in the hiring that Theyre doing and I believe they said they wanted to be up to 38 planes a month by the end of this year.

Yes.

If we really don't have a tracking to know how far ahead of time, they order the tools or if they ordered ahead of time at all.

And secondly, their numbers are if we see the same numbers you do and we don't know anything more than you do in that regard.

However, when when we were when they claim they were doing 22 planes, a month, which goes back maybe six months I guess or something along those lines.

They were quite to watch or people, who are installing factory pretty much every day. It was nowhere close to that number.

So I don't you know I don't know whats the true number or what it is but certainly I think the takeaway is it'll be much better going forward for the next couple of years, that's a big takeaway whatever that is.

And in your level of kind of business with them right now is about kind of what percent.

Compared to pre pandemic in and frankly.

<unk> two when they slowed the production line down when the 737 Max Scott.

Initially grounded which was actually before the pandemic, we were at around 50% or so before is it the same or you had ticked up a little bit.

I'd say, we're probably 60% or so of pre pandemic.

The levels.

No I wouldn't even say it never gets to speak.

The crash really of the crash was really more of an issue for them, but the pain.

Right.

Okay. So that's a decent amount of upswing, but your aerospace division seems to be so.

Division of Florida, pneumatic seems to be doing pretty well on the last call you discussed a new suite of cordless installation tools.

For aerospace from GFE that you were working on.

One of which you said on the last call you were taking orders in Europe , including from Airbus and you and the customers were very excited about this.

It's been another three months did those tools get delivered and how did the initial tests work out and when do you expect follow on orders of that initial tool and you also said you have a second or more tools in this line.

It would be ready for testing in the field I think in the present third quarter were in so what's the status of that as well.

Oh, Okay. So we are shipping we are taking orders and shipping the first tool it's.

It's ramping up it's no one particular customer we were taking orders for that tool worldwide.

And at Chipping in and just to be clear we're past the testing phase. These are shipments for to go right to the lines to produce jets. The testing phases is over for that tool great.

We're the second tool is in test.

Sometimes their internal task, sometimes we can send a few to.

To some customers for AR to work so that's still in process, but.

I think thats, probably not really going to be shipping, we're not going to be taking production orders probably killed till closer to the end of the year. The beginning of 'twenty four for the second.

The second version and Andrew I'll, just I'll take just one other thing I'll just add.

Comment on your comment.

Our aerospace.

Business is doing extremely well.

They will.

Very good backlog.

Very good prospects quoting is very high.

It's really a very we're very very optimistic and we don't generally talk about things like this on these calls, but I'm very very optimistic about no you generally don't Shaun I'm pleased to hear that you are even excited so that's good.

Yes.

Especially with Boeing having.

You got another we'll call it 40%.

Air pocket to get back up to and we and we know they will down the road.

And I'll just give you one piece of color that you can move I don't want to waste your time with us but.

Our percentage of business with Boeing.

Is down even though their businesses up.

If you understand what I'm, saying, where they're a slightly smaller percentage of our overall aerospace business I believe pretty sure well.

That would make sense simply because their business level is down.

With you and you had you were trying to get into Airbus before the pandemic and now you've gotten into them. So that just makes a lot of sense that you.

Filled the hole with other with other aerospace customers. So when Boeing returns your Aerospace Division presume your aerospace subsegment, presumably will be setting records for the company.

Hum.

Home depot going on in Florida pneumatic your release mentions that retail customer it's home depot reduce the number of skus of there.

Husky line pneumatic to align new manufacturer for them.

What happens to the inventory you had or still have these no longer stocked units.

Yes.

It will be your inventory levels come down further in cash will be received.

Okay inventory has come down I don't have in front of me call it $3 million.

Mostly related to the home depot there are.

A couple of things going on.

I think it's something like success Skus were dropped approximately.

Since last year.

But more importantly, we were stocking up pretty heavily.

Throughout all of last year and into the beginning of this year.

Because of the delays we were experiencing in getting product here from Asia, those delays have come down.

And we've been able to get away with keeping less safety stock and I think we're pretty comfortable.

With where the stocking levels are now and that cash is pretty much in the door at this point.

But when they discontinue skus and you were stocking units.

What happens they are obligated and they'll take those out and then.

Those units.

You use or discontinued.

They take all the old merchandise well, yeah, we we run that out we'd all we.

We don't have we don't have we don't get.

It's a well orchestrated.

Conversation and the gash discussions with US we would get it all out the door and Andrew has been a long day.

We've gone through this two or three times with them with new lines and new products, maybe even four times over the years.

Yes, we never we never had any inventory left.

Yes.

Moving on to high Tech.

What have the shipments to the major OEM customer you have referred to in prior calls.

Continued in or increase their level of activity in this current quarter it looks like it.

Okay.

Can you also comment on their business with you in the present quarter.

B.

The large OEM customer.

Places fairly large blankets that go out many months could it be in the six or seven months worth of product or more so deliveries can be spiky.

Work them in to our production plan and get them out the door.

You know in a in a organized fashion. So I don't know that I would.

Glean too much from any particular months shipments to that customer we kind of take a look at it over.

The quarter or even quarters at a time.

Good news is we're in great shape with them. We're excited about the future of them, we're working on some things and.

We're hopeful that we can do better even going forward on top of the levels. We currently even have and are at levels right now are very health with that customer very healthy.

<unk>.

Last quarter, you discussed how you are making inroads to our customer in the rental market for industrial tools and we're working on tweaking some products to better serve this customer and the market can you expand a little on your progress this past quarter and prospects for the rest of the year with these products and this customer.

That.

That continues.

There really isn't much of an update there it's a longer term program and we.

To be working on this for the next few quarters, there's not really much of an update.

In the OEM engineered solutions segment or sub segment are there any other particular areas industries products that are growing worthy of any callout an elaboration.

No not at this time.

Okay on the last call you mentioned Jackson gear had a lot going on in the international mining Arena did.

Did that sub segment continued with its growth and were there any other types of customers worthy of a call out as to momentum.

Yes, we're still doing very well with international mining and again just to remind everyone. It's not mining for coal necessarily its mining for just about everything you can mind.

So it is spread across a number of.

Of international locations is doing very well that customer is doing very well with us.

Okay and as is our as our backlog in that.

I Wouldnt clubs Jackson, we call it to PSEG BTG business, our backlog is very very healthy there as well.

Right now you mentioned backlog in aerospace and backlog with P. T G.

What do you define kind of as backlog these are.

Is that you have.

These are orders with expected deliveries within the next 12 months. The next six months, how do you define backlog when it comes to <unk>.

Aerospace and how do you define backlog as it comes to P. T G.

It's both it's both I'll, let you elaborate.

We monitor that we monitor bookings on a daily basis, but as you can.

Maybe backlog is the order that hasn't shipped yet.

But I don't know, how I mean I'm not.

Right sure how does it any other way, it's often and.

And so it's kind of quantified it gets quantified any chance that you guys might consider providing those kind of backlog numbers.

President in future quarters.

We are reluctant to do that that number moves around a lot I think we're better off explaining the general outlook for the businesses.

I'm, just not comfortable trying to explain whats happening in the backlog because.

Backlog is very different in terms of each business unit.

Some have a few weeks of backlog some have a few days of backlog. Some have three months of backlog and then for me to parse out what's going on across eight different product lines in there each of them and they are different backlog.

You know normal.

Relationships would be frankly, no I don't think very helpful to investors I think it's we're better off explaining the overall business because as I said, if you take our largest customer.

We could get an eight month order from them work it down over four or five months ship. It all in 30 days wait for the next order and then I'll get a question about why backlog dropped by $2 million when Theres absolutely no issue going on with that customer just waiting we know we're working with them on the next orders so.

Don't think its going to be very helpful to investors and Thats one of the reasons, we've never disclosed it.

Okay.

To what extent is prior under absorption of manufacturing overhead costs.

Ben referred to in prior.

Press release been addressed in Q2, and what are the remaining issues if any to be resolved and can you expand on the steps and timing to address these issues.

Yeah as we've said in prior calls we've over the last six months.

Seven months, we brought in actually three to four.

Fairly expensive pieces of equipment that will help automate things.

We are frankly, a little behind schedule on where I'd like to be.

With those.

Machines being up and running they're all up and running but.

We're well behind where I'd like to be.

In terms of their benefit to the operations overall and I don't really think we're going to see much benefit for those machines until even the fourth quarter and I would estimate that.

I'm, just taking a number four machines, probably 20% of the benefit in this year.

But most of next year, we will see almost full benefit for the whole year.

So lots going on and we were excited about the run times that we're seeing but theres a lot of tweaking theres a lot of coding theres a lot of additional tolling that has to go in place. It's just a slow process.

And where we're taking our time, we were hopeful that we'd be a little farther along than we are.

And it just is what it is but we still are highly confident in the ability of those those new tools to drop some money to the bottom line, yes, it's going to be it's going to be very significantly and very very profitable and very good for us efficiency wise and all that and as Joe said, it'll it'll be it'll be <unk>.

<unk> over the fourth quarter and next year, we're expecting very good thing and having said that we're not having any issue getting product out the door.

In general.

Youre just manually loading things instead of the robots doing it well yeah, Yeah, I mean, we were.

We were achieving these levels.

Shipments.

Just about a year ago, but these are going to help a lot.

Now when you talk about this is this.

I ask the question within PT G, but youre talking about automation equipment that is P. T G or high tech across the board or.

Also.

Hi.

Yes.

Florida pneumatic doesn't manufacturer.

Domestically really it's jiffy and shift in both our facilities and high Tech.

Okay.

All three areas, where things are a little behind schedule, but but the machines are in but yes.

Just getting things tweaked.

Where were spent we spent roughly two $5 million in Capex. This year on these machines is very very exciting and promising for us.

And your property.

The year.

Yes and Youre.

Prospective capex spend from this point going for the rest of the year is what kind of level and for what other equipment.

Modest I think I don't have it in front of me, but I think the full year is something like 2.9 or $2 eight three.

$3 million, so maybe there's.

Well, we're already in August .

So I say in the acute in terms of our reporting.

Theres, probably a million left to go but we probably already spent a good chunk of that already by the end of the third quarter it'll be the money will be spent.

So it's about $1 million left as of the end of June the June quarter.

Right Okay.

Andrew Alright, okay.

And it's three minutes left.

Thank you.

Okay.

Is it yours and the board's view to focus P enough more towards making <unk>.

New acquisitions or in a permanently lower the company's average debt levels or expanding the return of capital to shareholders with highly selective.

Buybacks or increased dividends.

As the company appears to have returned to sustained.

Profitability and even higher cash flow generation.

Okay.

What's your thoughts here, Richard and the boards.

Yeah.

<unk> and myself are very very.

Focused on acquisitions. There are there are a few that I know of that are.

Potential that will be good for us in the same exact feels that we're in.

Which would add to our business. So if they make sense for us to move in and we can make to make the deals with the people.

Companies, we fully intend to do that it's nothing imminent, but certainly I would say within the next nine months to a year.

Would expect that we will we will have at least one acquisition.

And as CFO .

And at this time.

Yes, your debt levels.

Apparent low now very very low and we have and we have a big runway.

Aligned with the bank.

Right.

Right now with these acquisitions in the and the focus of PT G.

Other areas of high tech or.

Inside of the Florida pneumatic.

Our aerospace operations.

Well I can't be specific about it but I can tell you it could be affecting all of our all of our company is in a good way.

Okay.

It's kind of the way I would describe it we're looking at acquisitions, we always are.

Any new information.

But I think you rightly point out debt levels are getting to the point and sustainability of profits and cash flow are getting to the point that.

We certainly will be in a position to pull the trigger on something.

At some point next year, assuming we're comfortable with.

How how we're doing with our with our factories.

You have on any one last question for you. If you don't if you don't mind, Yeah and the one last question is it's a nice that you're thinking about the acquisitions you are focusing your discussion on it is or debt levels below we could use that to do it but one thing that we can't really do is use shares to do it in light of the fact that our shares.

Are so deeply undervalued relative.

<unk> book value and an even tangible book values, which is north of $10 a share.

Sure.

In light of these operating and.

Sustainable progress you made.

Is there any thought of perhaps doing some non deal road shows talking you know to the investment community a little more outside of these quarterly calls to raise the visibility of.

The company its cash flows and its prospects so that.

Your acquisition opportunities could be done with the lowest cost of capital.

Which might at some point, perhaps not necessarily be high interest debt.

We.

We've said this many times, but as we as we've talked about this at each board meeting, we certainly intend to do that.

To be to be seen but it's not it doesn't go on last year's what youre, saying so thank you for that okay alright.

Alright, thank you.

Hi, Thank you Andrew.

Well thank you Mr Shapiro.

Ladies and gentlemen, once again, if you have any questions. Please press star one at this time.

Well now go to Timothy <unk>, who is a private investor. Please go ahead Timothy.

Good morning, gentlemen, thank you for taking my call.

Good morning, Rich Richard it's exciting to see you optimistic and enthused and even dare I say chipper.

[laughter].

I have one question in mind, only and that is.

I'll never drill down like Andrew but but.

I'm going to drill down in the high end.

Florida pneumatic on the $1 $9 million decline, probably a Joe question, but.

Ever.

Yeah.

And in the retail segment.

Can you give some sense of what part of that one third two thirds is due to the lack of the pipeline fill that you saw in the year ago quarter verses the choice of certain customers home depot, I don't know to reduce skus.

Yes.

I don't know if youre asking this question I'll, let Joe fill it in but it's essentially the SKU drop and of course, the economy, which is slowing down but Joe you can add to it.

So I would say there is a re queue.

Q2 of 'twenty two.

<unk> was a pretty big quarter, we had a rollout we refresh the line that.

As you know we refresh the line every four or five years. So we refreshed our line it was a running change.

So we certainly had a bump up.

I mean, it was a seven figure number for sure.

Exactly but it was seven figures. So yes, I think there is definitely some of that in there, but it's lost a little bit.

Three things that happen.

There is the rollout we dropped six Skus and then in addition to that.

Prices were raised and I think frankly, they will probably a few less units sold our margins got better but a few less units sold so it's a little hard to parse, which one of those things exactly drove the total change theyre all in there, but not to be lost or what the seven figure rollout.

Okay, well it sounds like that the the bulk of it or a majority of it. Then is is is just the lumpiness of the rollout and not a permanently lower level of sales due to reduced stocking keeping keeping units. That's real also that's true that's material, but it sounds like it may.

That the.

The Lumpiness factor may be the.

The outsized amount, but maybe a majority.

Yes, I mean, the level of revenue for the quarter.

That we have it in retail is a pretty sustainable number.

Going forward without trying to get into projections, but.

We think thats a reasonable figure, yes, just Tim I'll, just add to what Joe said.

The end of last year home depot sales were going down a lot there with tightening inventory and all that kind of stuff and now as Joe saying.

In the last three months, but maybe more their levels have been very predictable the orders have been very predictable and.

Whatever that businesses is ongoing at this point that it's stable say it that way okay.

Okay.

Okay.

I know this may shock, you, but I don't have anything more so thank you.

Have a good day.

Thank you Tim.

Thank you very much sir.

Ladies and gentlemen, once again, if you have any questions. Please press star one on your telephone keypad.

You do not appear to have any further questions coming in Mr. Horowitz I'd like to turn the call back over to you for any additional or closing remarks. Thank you. Okay. Thanks. Thank you all for your time today.

We wish you a good rest of the summer and we will look forward to speaking to you with our third quarter number is closer to the end of the year in November . Thank you all for your time today.

Ladies and gentlemen that will conclude todays presentation. Thank you for your attendance your disconnect.