Richard Goodman - General Counsel Richard Horowitz - Chairman, President, and CEO Joseph Molino - COO and CFO

Andrew Shapiro - Lawndale Capital

Good day and welcome to the P&F Industries Inc. Q1 2015 Earnings Call. Today’s conference is being recorded. And at this time, I wouldlike to turn the conference over to Mr. Richard Goodman, the Company’s General Counsel. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to the P&F Industries first quarter 2015 earnings conference call. With us today from management are Richard Horowitz, Chairman, President and CEO; and Joseph Molino, Chief Operating Officer and CFO. 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, including, but not limited to the strength of the retail, industrial, housing, automotive and other markets in which we operate; the impact of competition, product demand, supply chain pricing; our debt and debt service requirements and those other risks and uncertainties described in the reports and statements filed by the company with the Securities & Exchange Commission including, among others, as described in our most recent annual report on Form 10-Kand our subsequent filings. These risks could cause the company's actual results for future periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the company. Forward-looking statements speak only as of the date on which they are made, and the company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. With that, I would now like to turn the call over to Richard Horowitz. Good morning, Richard.

Good morning, Richard. Thank you everybody for joining us this morning on our conference call. As this earnings call proceeds, the release of our quarterly report filed on Form 10-Q for the three month period ended March 31 of this year, I will begin today’s call with a brief summary of the company’s results of operations and earnings per share for the first quarter of 2015 and how they compare favorably to the same period in the prior year. I will then ask Joe Molino to briefly discuss and review key cash flow information and provide an update on key events affecting the company, after which we’ll move to our normal Q&A session. However, before I begin, I wish to remind all of you that the purpose of this call is solely to discuss and review the company’s first quarter 2015 results, nothing pertaining to the proxy annual meeting or other areas that are the preview of the annual meeting next week will be addressed at this time. As such I kindly request that the questions focused on our results for this past quarter only. Thank you for your cooperation. The company’s consolidated revenue for the three month period ended March 31, 2015 was $19,826,000 compared to $15,932,000 for the same period in 2014. I believe it will be helpful to discuss these changes by segment. With respect to our tools group, revenue during the first quarter of 2015 was $14,559,000 compared to $11,191,000 in the first quarter of last year. Specifically, first quarter of 2015 revenue of Florida Pneumatic increased to $10,254,000 from $7,475,000 in the first quarter of 2014. The increase was driven primarily by the Exhaust Technologies Inc. and United Air Tool Company’s acquisitions that occurred during the third quarter of 2014. As these two acquisitions were rolled into Florida Pneumatic and their revenue was included in the automotive air tool revenue sector within Florida Pneumatic. Hy-Tech’s first quarter 2015 revenue was $4,305,000 compared to $3,716,000 for the same period a year ago. This increase was due in large part of the acquisition of essentially all the operating assets of Air Tools Service Company in August of last year. Revenue for our hardware group which consists only of Nationwide Industries was for the three month period ended March 31, 2015 $5,267,000 compared to $4,741,000 for the same period last year. The largest contributor to Nationwide’s improvement of the prior year comes from its fence and gate hardware product lines. We intend to continue to pursue our current strategy which is to develop new innovative products and accessories for this product line area. The company’s consolidated gross margin for the three month period ended March 31, 2015 and 2014 were both 37.9%. Specifically for the tools group, first quarter 2015 gross margin was 37.8% compared to 37.1% for the three month period ended March 31, 2014. The improvement in the tools margin is primarily driven by the added automotive tools revenue. For the hardware group, first quarter 2015 gross margin was 38.4% compared to 39.8% for the same period last year. The decline in Nationwide’s gross margin was due to a number of factors among which are overall product mix and competitive pricing pressures. Our selling and general and administrative expenses for the three month period ended March 31, 2015 was $6,096,000 or 30.7% of revenue compared to $5,227,000 or 32.8% of revenue during the same three month period in the prior year. Although our SG&A as a percentage of revenue declined 2.1 percentage points, the significant factors contributing to the dollar increase nearly all of which were driven by three new acquisitions in the third quarter of last year include among other things, $270,000 of additional appreciation and amortization, decreased compensation related expenses of $270,000 as well, an increase in variable expenses of 144,000 and lastly, an increase of 47,000 for professional fees. Primary result of the three acquisitions occurring in the third quarter of 2014, our first quarter 2015 -- excuse me, total interest expense including amortization of debt financing cost increased to $192,000 from $89,000 in the same period last year. Taking all the above data into consideration, our income before income taxes for the three month period ended March 31, 2015 was 1,231,000 compared to 719,000 for the same period in the prior year. And our net income was $781,000 compared to 462,000 for the three month period ended March 31, 2014. EBITDA for our first quarter of 2015 was 2,163,000 compared to 1,240,000 in the same period a year ago. Our basic and diluted earnings per share for the three month period ended March 31, 2015 were $0.22 and $0.21 respectively compared to $0.13 and $0.12 respectively for the same period in the prior year. At this time, I’d ask Joe Molino to provide some insight into our cash flow. Joe, please proceed.

Thank you. Just a couple of items. Capital expenditures during the first quarter of 2015 were $184,000 compared to $182,000 during the first quarter of 2014. Significant non-cash items affecting our cash flows during the first quarter of 2015 were depreciation and amortization of $416,000, amortization of other intangible assets of $324,000, amortization of debt issue cost of $28,000 and stock-based compensation of $38,000. Other significant components impacting our cash used in operating activities were increases in accounts receivable and inventories of $2,373,000 and $2,097,000 respectively. With that, I’d like to turn the call back over to Richard. Richard?

Thank you, Joe. Lastly, I would like to acknowledge as always our employees and the management for doing such an outstanding job during these continuing sluggish times, especially with the challenge of incorporating three new acquisitions into our existing businesses. That’s the end of our report today. And we’d be happy to answer any questions anybody may have. Operator, you may proceed.

[Operator Instructions] And we’ll take our first from Andrew Shapiro with Lawndale Capital Management.

So I don’t want you to take the wrong message from our questions for quarter that we think was really good results, but I think from your language of your press release, you’re not really running full speed and all cylinders yet and so we’re – our questions undoubtedly then focus on the areas of improvement. So with that in mind, I have questions about a bunch of your segments and I’ll back-out in case there are others in the queue, but it was a good quarter. But with respect to the tools segment, your release mentions quote this line of tools is being introduced to the UK and that you’re optimistic they will gain acceptance, implying not yet having achieved your goals, this is with respect to either AIRCAT or NITROCAT or both or others that are new introductions into the UK, can you clarify?

Yes, it’s AIRCAT and NITROCAT, I would say that we’re also hopeful that overtime we can work some of our industrial tools into that product line but that has not been an area of strength for that operating company as of yet, but overtime we think that can also be added to the line. But primarily, we were really referring to AIRCAT and NITROCAT.

Okay and when were these products actually introduced and made available over there?

The catalogue wasn’t even available for sometime in January and I still believe we don’t have the full complement of SKUs available to them yet.

So then the quarter ended March clearly wouldn’t even have the uptick and even what’s been offered in the current quarter ended June when we won’t be seeing the full availability at either then, right?

Yes, I mean I think you will see more certainly in the second quarter and I will also say that there’s a fair amount of business related to the North Sea oil channel which if you’re following oil prices, you realize oil was down, so there’s a little bit of headwind with some of those customers, so that’s dampening the effect a little bit, but going back to my original point, Q2 is probably the first I would say reasonable opportunity to have almost the full complement of those tools available.

Yes, but I would just caution Andrew in saying that it’s a big project and I don’t think A: I don’t think it will be a very dramatic change to the overall P&F scheme of things at the beginning and as that time goes on, it will obviously and hopefully improve, but I don’t expect anything dramatic that’s going to be very-very noticeable in Q2.

Yes, keep in mind – I’m sorry to interrupt, so keep in mind, in some cases we’re literally replacing what they were offering with the new offering from P&F. So while you may not see a lot of movement in revenue on a consolidated basis, we should see some additional margin because we’re obviously supplying ourselves.

And so with those caveats headwinds and while this – you can’t predict the headwind, but just with those caveats of some of this is a substitution…

Yes.

What level of I will call it annualized incremental sales potential and are you thinking of to measure the success of these lines having gain the acceptance in the UK or not? 200 down a bit?

Incremental AIRCAT sales in the UK?

Well, all AIRCAT, NITROCAT you mentioned about the….

Yes. I’d say AIRCAT too, frankly I include NITROCAT when I say AIRCAT, but it’s in the hundreds of thousands I mean you have to remember that operation is only a couple of million dollar operation to begin with. So…

Right. Yes, yes. No, I’m just…

I think that the bigger impact and then a good impact and a positive impact is the AIRCAT line which includes NITROCAT in America which we are having very-very good and quick acceptance and growth in that area in our business. So that’s the bigger, the bigger thing really right now.

Now, you mentioned a few quarters ago when this was bought and we’ve discussed this that there are some features – technical features with the acquired lines that might have applicability improving and enhancing our existing lines. Has that type of engineering work begun and what would be the timing for seeing improvements in our own legacy SKUs to reflect some of the acquired technology?

Let me answer that in two parts. That technology is obviously available to both Florida Pneumatic and Hy-Tech. I think if Hy-Tech was not busy assimilating its acquisition, I think I think they'll be moving more aggressively in that area, frankly we feel the best use of our resources is the simulation right now for Hy-Tech. On the Florida Pneumatic side, some of that work has begun, but I don't know that you're going to see an obvious change. I think the benefits will be there. I don't know that you could -- how material that's going to be at least at first and how much that will jump off the page, but to answer your question, I don't think till later in the year, really is when we're going to see some of that benefit. It is not been -- while we are working on it, we have been focusing mainly on where we can get the most bank for our buck upfront. And it certainly seems to be in putting money into marketing and sales people and those sorts of things. And we absolutely are getting return on that. But we certainly still want to focus on the engineering issues. It's just gone to the back of the burner a little bit. But we are still working on it. But it's going to be a little while.

And, regarding the integration process, so that's going into Hy-Tech, not yet being a complete. What percent of the integration would you say was complete as of the end of Q1 and what percent is complete right now that you would describe based on your, kind of your integration map, that I'm sure you have drawn up.

Yes, I don't know of that site. Joe may have a better feel on this than I do, either I don't know. I don't know if he could really give a percentage, kind of a thing. I think that the company was merged in the first quarter, like the end of January basically, we moved from Cleveland -- I mean February, excuse me, moving Cleveland into Pittsburgh. And obviously when you move a factory and all the machinery and all the other stuff and then simulating with our people, and blah blah blah, it's a very tedious process. And I guess, in hindsight I guess we are not proceeding quite as well as we thought maybe we will work. But we are proceeding. Every day we make more and more progress with the management team there, and on top of that with us are working very-very hard pretty much every day, trying to figure out new ways of getting to a finish line quicker. I'm going to guess, this is the best way I can answer the question, I'm going to guess that you're looking at the end of Q3 as really what we're looking at, as really being on all cylinders but with a clear indication and every month we will get closer and closer to that finish line and I think it's interesting to note that the company being P&F had a very good first quarter without that benefit. So I think that --.

Exactly, I remember you said it was a good quarter, yet we would mutually agree you're not firing on all cylinders, and my questions today focus on those areas of improvement to get a better handle on what things might be like even when we fire in all cylinders because when someone invest in your company today, it's on the present value of expected future cash flow. So are you out of the old facility and no longer paying rent?

Yes, we are out of the facility and we are no longer paying rent.

That was as of when?

I would say, by the end of February, we got totally out of the facility.

And we paid -- rent was due for a couple or more months, but I think we had a nine-month arrangement there.

So, rent was paid, and in our SG&A through when, April through the end of March?

Through the end of April.

Okay, so that will be -- exactly Q2 won't even have the full benefit of that having stopped. So now the equipment is shipped over into the new facility, and what you're doing is what, now realigning the floor, is the floor being realigned where you wanted?

The floor is essentially realigned. We were just there a few weeks ago. The floor in the factory is basically in the layout that we need. We have a few problems with some of the machines that we moved over in terms of being able to operate properly and all that stuff. And we have ordered other machinery that will come in late summer only, I am thinking or perhaps even right after Labor Day which will also help in the process. But I mean the setup is -- it's a moving target, it's a fluid situation that cannot be changed. But as of now everything is in its place, in its current situation.

And then did you have to take on for a time being or permanently staff and workers from the old facility to bring over the knowledge base over into the Hy-Tech facility.

We only wish that we could've brought more people from there. But the commute was too much for pretty much everybody there. We had two employees or three employees that came with us for a very short period of time. We still have one with us who is very valuable commodity and he is staying with us, more in the engineering side. And he was a very high-high level person in the place, so there's confidence with that but having said that we own the company since last August, so at this point we don't have many blank spaces. We're pretty much know what's going on now in that regard.

Let me just add one more thing. While much of the equipment is where it should be, a lot of the programming has yet to be done. In many cases it made a lot more sense to program our equipment for their product than to reprogram their equipment once it was moved. So a lot of that work is yet to come.

Okay, I'll back out, I've got other questions. Please come back to me.

Sure.

[Operator Instructions] Mr. Shapiro your line is open, again.

Okay, further questions on the tool side. So it’s nice to see that Florida Pneumatic experienced a year-over-year increase from Sears, based on your very long history of Sears, and your observations of their contraction over the last few years, do you think the worst just behind this customer's purchase is from you and it's bottoming and albeit unnecessarily a opportunity or timing for a huge rebound, but do you think the worst is behind you?

It's hard to really predict what's going on with Sears. It's not our area. I don't know if we would really be able to express an opinion about that but I can tell you that our feeling is that hopefully they'll be able to stay in business and as long as they do we think that we bottomed out, but I mean with the current circumstances the way they are, we think we're bottomed out. But things that are out of our control and that we are not aware of could change that tomorrow, but as of now I would say that's a fair statement.

Yes, a few things I would add. Things are certainly more stable in terms of month-to-month sales. We do sense that there is a renewed focus on the Craftsman Kenmore and Diehard lines. And frankly that's where their strengths are. We see the store -- we see the in-store numbers, I don't know if it's a weekly or monthly, but we are encouraged by how steady they have been. So I certainly feel that things have stabilized whether it's a bottom or not, I can't tell you but we are certainly more optimistic than we were six months ago about their prospects. And I do want to mention that there was a product line that was an import line that didn't generate a lot of profit that we mutually decided to discontinue with Sears. It's a promotional item that we will not be shipping later in the year. But the impact on profits is extremely small.

Okay, and on the large order in Hy-Techs, other line as you broke out the Hy-Tech revenue streams, was the single customer responsible for most or all of that increase?

Yes.

And can you describe the products purchased by this customer?

It's not one of our standard pneumatic products, but it's -- without I can't really go into exactly what it is, but it's a product that benefits from all of our manufacturing capabilities and we're very fortunate to get that and with some luck may be will get another order but it's not a standard product per se, nor an air cooled per se, but something that takes advantage of what we do well.

And you know one of the reasons -- one of the contributing reasons that we bought ASCO.

Was this particular product or this particular new customer?

More of the product line.

And so, is there -- can you describe the recurring nature if any from this line of products?

I'm sorry, say that again Andrew?

Can you describe the recurring nature, if any from this line of products?

Well, as I said we may get another order later this year, that's all we have heard. We heard about in May we get another order. That's all I can say. We're certainly not counting on it. It's not in the forecast.

Is it a unique product for this customer or it could be sold to other customers?

No, it's absolutely unique for this customer.

Well, I presume and hope you got good margins then.

We always get margins on -- great margins on one-off products.

Okay, and on the hardware side, you mentioned Nationwide will "continue its marketing efforts", but then I was wondering why might "continuation of efforts" that you presumably have been making for a while, might now as you referenced impact the performance of Nationwide's other product lines, is that just Semantics or is there something going on in the business that lead you to that disclosure?

No, I don't know if we misread something or you misread something. But the fence part of our Nationwide Company is doing very well and we continue to -- we're just benefiting from that and continuing to deal on that road. So you have --.

I'm not sure I understand the question Andrew. You're asking if those investments are going to be in anything other than fence or we see the benefits outside the fence, is that what you're asking now?

I mean, I go after what I read, and I didn't misread it, but it could still be Semantics that in the description here where we compare prior language to current language, you do say we're going to continue our marketing efforts. Okay, but however the strategy could impact the performance of Nationwide's other product line since it's a continuation of efforts; I was wondering what, it was of anything that lead you to believe now that the impact of your other product lines -- your other product lines might now be impacted by your continuing marketing efforts you have been doing for a while.

So, you know what, now rereading it we actually had essentially the opposite intention, although there's nothing wrong with the language. The other products could be negatively affected by our focus, our greater focus on fencing. That's what we were talking about. We probably should have put the word negative in there, but --.

Oh no, I should -- that's exactly what I took from it. So your --

Okay, I am sorry.

Your guidance was what I took from it but because you're saying you're continuing these efforts rather than increasing your efforts, in other words it's not a reallocation of resources, it's a continuation of resource allocation. I was wondering why all of a sudden your other products are going to suffer, you're just spending the same amount of efforts that you have been doing.

Well, first of all if they suffer. And I think we're probably parking the language a little bit too finely year. But I don't -- you have drawn too much out of it other than what we've already done. There's no change in strategy.

Okay, no change in strategy then I --.

Before expected performance, or expected performance --

Well then that's a risk factor for your 10-Q, just like I don't understand why all of a sudden it goes into your press release but nonetheless, [Multiple Speakers] your M-customer and hardware, what products have been sold to this customer, is that fencing or something else?

Yes, it's fencing related products, but it's very low margin.

Okay, and what makes the expectations for the sales to be sporadic is it initial customer fill or is it seasonality of the product or something else?

It's a customer that we have worked with many times over the years. They tend to buy primarily on price, many years depending on the availability of materials and factories capacities we were able to meet their demands on price and in most years frankly we were not. So that's why it's nice to have when we can get it. But we absolutely cannot count on it.

Okay, let me back out. But again, I have more questions, but I just want to be -- give out this opportunity here.

I don't think there is anybody else Andrew, this time.

That's too bad, okay, so then you talk in the past about non-core equipment in asset disposals from the acquisitions. Did you, I can’t remember in aggregate what you thought you might be getting for those and it’s in the aggregate, it’s not a lot I want ask. But I think as the last quarter those disposals and cash proceeds hadn’t yet been implemented?

Let’s break it down, we gotten next-to-no equipment on the UK acquisition, no equipment on the West Coast or ETI acquisition and for right now, we’re keeping everything we’ve got from the ASCO acquisition. There could be a point where things be covered redundant especially as we bring in some new equipment but right now there are no plans to dispose of that stuff. And if they do get dispose, so I think it will be spread out over long enough time that I don’t know that you’ll see a significant cash flow impact. I just want to follow-up earlier on that customer with the sporadic sale, it was not fencing, it’s an OEM account, which is our door window area, sorry about that, not perfect.

Okay, door window OEM. And regarding ASCO and all that prior calls you mentioned that should we expected the biggest customers to remain with P&F and inside of Hy-Tech. Has that been your experience or is that still to be decided?

No so far, there has been no issue with all of them.

We feel that the relationships with those customers are as strong, if not stronger than when they were with at field ASCO. And I think we may have mentioned that one of the larger customers was also a significant customer hours before acquisition. So we’re very comfortable with those relationships.

And further one customer is even set to us, we’d like to grow the business more in other areas and that’s a more stable company behind it.

Right, we like to hear that. And just on that same vein in a prior call not Q4, but in the prior call. You discussed initial favorable response, some trade shows and here we are many months later, I think it’s time to checking on that. With the expansion of the new tool lines, are you going to more, are you gaining access to more trade shows, have you expanded the customer base. Do you feel you’re gaining share as of yet, because of your broader offerings?

Without a question, we’re not going to anymore shows, we go to every show. But without question, we’re gaining more market share, market acceptance, because of our acquisitions.

We’re growing faster and certainly in automotive we are growing faster than the growth in the automotive tool market, without a question.

And does this growth offer you and are you seen we’ll call it incremental acquisition opportunities from perhaps other small players, who’d like to jump on the P&F train?

We haven’t really focused on that Andrew, because really focus for the short-term is to stimulate these three acquisitions into our business. So we see things, but nothing has really hit us and we’re really focusing more in 2015 making everything that we’ve got work that we wanted too. And then take a deep breath and move forward yet again. That’s all.

Okay, alright. I mean given the cash flow you generated for the quarter, a few more quarters of doing that or bring your debt levels back into acquisition mode any way?

That is correct.

So, regarding universal again going back to and following up on prior calls where we’ve been the only questioner as well. You had a few principals in that firm who were going to transition and leave upon the acquisitions and all that. How did that transition work and have those costs dropped off and was it in the middle of the quarter, beginning end of the quarter that they would come out of your SG&A line?

Was in the middle of the first quarter.

So the current quarter will be the first time that SG&A from that part of it will be normalized.

Yes, yes. But again the numbers are relatively material on a consolidated basis. But yes.

Yes. They all end up a few hundred thousand in AIRCAT, 80,000 here, 80,000 there. You don’t have a lot of shares outstanding, so it doesn’t take much to move the EPS number.

Right, that’s true 100%.

Okay. Do you have, so is it a more of a matter of timing or is that a matter of debt level that I want to say timing, integration timing or matter of debt level that is kind of driving your, we’ll call it capital allocation decision on acquisitions versus buyback versus dividends again?

Could you say that again from an exactly stand?

Is it more a timing and completion of integration or a reduction to an optimal or more conservative debt level that is driving your thinking with respect to having to make capital allocation decisions again such as acquisition versus buyback versus dividends?

Yes, I would say, it’s more of a timing thing for us. Actually I think we expect good cash flow as the years goes on and our debt levels will continue to come down. Having said all that, we still at our last Board meeting in March had a lengthy discussion with the Board about dividend, deployment of assets et cetera, et cetera. And after our annual meeting next week we will do the same. So it’s something that don’t necessarily moving on it right now, we discussed, we were end review at every meeting as I’ve told you we do.

And on the prior call, I think you’ve talked about many new products that we’re in the process are being introduced into the lines. Can you describe that process and how successful the new product introduction has been?

We think it’s been successful, we’ve added a number of products in the AIRCAT line, those are all, my understanding is those are all available now certainly in the U.S. and shortly in the UK. We are working on some, no excuse me, aerospace tool one in particular that we’re excited about for in the Q2, beginning in Q3. And I think that’s really, I think by Q3 I think put out what we’re going to put out for the year in terms of new tools.

And with AIRCAT, I think we put out a little over 12 tools into the ended first quarter beginning in the second quarter just started introducing them as well. So as we’ve said before, it’s an ongoing thing but we’ve been very aggressive in terms of using a technology and getting new tools out there and taking of advantage of that very good and popular name.

Right. One of the measures for success of new product introductions or the payback on, I know if the right word is R&D here but for engineering expenses is to look at the amount of revenue and cash flow being generated from products that were not an existence and not I don’t know mean by quit, but not in existence a year or two years earlier, do you guys do that type of analysis or would you potentially provide that on a future call?

We do that analysis, we use the five new roles. One and two years in our space is probably not appropriate. I don’t know is that data we are ever going to share, but we do look at it and the subsidiaries are measured on that, their performance is measured on that.

Yes, and what would be, what’s the priority reason especially using a five year measure to not share that with your investors to give that additional color in your business?

We’ve never had that data, I think in some cases it can be misleading, there is some cases you’re replacing tools and I wouldn’t want to be misleading the investors, but it is something we look at internally although we don’t share and we never have.

We’ll look at it as time goes on.

I mean if we get really comfortable with those metrics, I don’t want to say never, but we do look at it. It is something that the executives are measured against.

And in terms of the executives being measured against, we had a very good quarter. You guys have a performance bonus plan, et cetera. When you provide and give us an income statement with the SG&A, that SG&A has built in or does the SG&A have built in an estimate or an accrual for where you guys are at versus your various performance bonus target, so that there’s an accrual for bonus in there, so that in the fourth quarter if you continue such a great year, it’s not a big quarterly hit, but it’s already partially been recognized now?

Yes, absolutely.

That is GAAP. It’s required by GAAP and we do that. Obviously it’s not so fourth quarter that we’ve nailed it, so it’s just an estimate and until then, but the goal is to have a minimal impact. Yes, we don’t – what we try to avoid is a fourth quarter adjustment to address Qs 1,2 and 3 obviously fourth quarter stands on its own for whatever happened, but that is the goal.

We’ve been doing that forever.

And if you had a poor second quarter which we obviously hope you don’t, there’s a true-up that in other words that helps minimize the decline?

Absolutely, of course, yes.

Absolutely. And that’s not just – that’s all of our compensated employees.

I’ll back out again unless you guys can see there’s no one else in the question queue.

There’s nobody else.

There’s no one else.

On your interest expense obviously you got a higher interest with high level of borrowings from the acquisitions, but it looked like from the press release that there was also an increase in your loan margins probably due to certain measures. What are those measures and I’m trying to assess how close we might be to reduce debt levels that then not only benefit from lower interest expense from reduced debt levels, but also a return to the lower interest rate margins?

Q2 is historically our peak borrowing and even with the acquisitions that didn’t change that dynamic, so from the end of Q3 through somewhere in the middle of Q2, they peaked and we’re now coming down and will come down the rest of the year. And we are on a grid with our borrowing, so we calculate the interest rate once a month based on our those formulas that we give to the bank, so we’ll see I believe a peak in the interest rate for the month of June because we’re always – we’re a little behind obviously in terms of what – when we give in the data and it’s just reset once a month. So for example, if I give them on May the 2nd the data for April which is obviously impossible, we wouldn’t be able to reset till June 1. So we usually have 30 days to produce those statements for the bank unless it’s a quarter end or year end, so I know that’s a long way to answer, but the interest rate will start coming down in July, the debt rates will start coming down – excuse me, the debt levels will start coming down June 1.

We have no issues whatsoever with banks or covenants or ratios, as a matter of fact, I don’t know if it was the end of the first quarter or the beginning of the second quarter, we paid off a term loan in advance because our stipulation with them – with the bank was that if our cash flow exceeded a certain amount of money or whatever, we had a paid off in advance with the paid off a year or more ahead of time and there was no effect to – otherwise we would had a discussion with them, so even with that, we were in good state.

And when did that get paid off early?

April 1st or April 2nd.

April 1st.

And so the measure for the grid is debt to equity trailing cash flow to interest expense, what are the metrics?

Senior debt to EBITDA on a trailing 12 months basis as adjusted and what I mean by that as we get the benefit for the assumption that we had the acquisition for full 12 months. So we have to make some adjustments in there, it’s a very favorable approach.

So – yes, then the grid will work your way pretty soon.

It already is. Like I said, we already peaked and we’re going down the other way.

And with this quarter’s profits, does that chew up the rest of the federal NOLs?

Yes, we’re done. Sorry. Got to pay taxes again.

Yes, well. You’re accounting for it already had it anyway, right?

Yes.

Yes.

Right. And unless you can find a profitable pretax cash entity in Virginia, right?

We’re drying.

You got everyone out there looking for it.

Yes.

And, is -- the integration, I don’t say is on autopilot and all that, but if you guys are not as busy on the acquisition front until that gets done and that’s been worked I will call it on the local level. Any thought by you and within the Board room about taking a gander out and telling the P&F story in the investment community in some form that is friendly to microcaps at all.

It’s something that we will discuss at our Annual Meeting for sure. It was all my agenda to talk to the Board about it, not same, it was going to be a banking to deal with it, but we certainly -- I think we need to address that in some way.

Yes, because clearly if this is the run-rate and you’ve talked about and we’ve discussed and I focused on questions about what incremental upside or business and cash flow generation is not yet reflected in our Q1 numbers that could be reflected going forward, with that kind of incremental run-rate and this kind of EBITDA level and a market cap here in the – what is it, these are in the 30s I mean it’s – the valuation multiples here on the company are pretty ridiculous and that implies either we’re not effectively telling the story or some other capital resource allocation items need to be considered to do, don’t you think?

Yes. I think – I do, I don’t really quite know how to address that at this time, but I certainly think we will – we plan on discussing it at the Board Meeting next week.

[Operator Instructions] There are no further questions at this time. A - Richard Horowitz: All right. So thank you all for joining us today on the call and we look forward to speaking to you in a few months with our Q2 results. Have a good day everybody.

This concludes today’s conference. Thank you for your participation.