Richard Goodman – General Counsel Richard Horowitz – Chairman, President and Chief Executive Officer Joseph Molino – Chief Operating Officer and Chief Financial Officer

Andrew Shapiro – Lawndale Capital Management

Good day, and welcome to the P&F Industries, Inc. Q3 2018 Earnings Conference Call. Today’s conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Richard Goodman, the company’s General Counsel. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to P&F Industries Third Quarter 2018 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. 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, exposure to fluctuations in energy prices, debt and debt service requirements, borrowing and compliance with covenants under our credit facility, disruptions in the global capital and credit markets, the strength of the retail economy in the United States and abroad, risk associated with overseas sourcing, including tariffs, customer concentration, adverse changes in currency exchange rates, impairment of long-lived assets and goodwill, unforeseen inventory adjustments or changes in purchasing patterns, market acceptance of products, competition, price reductions, interest rates, litigation and insurance, retention of key personnel, acquisition of businesses, regulatory environment, the threat of terrorism and related political instability and economic uncertainty, information technology system failures, attacks and those other risks and uncertainties described in the reports and statements filed by the company with the Securities and Exchange Commission, including, among others, as described in our most recent annual report in Form 10-K, our quarterly reports in Form 10-Q and our other 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. And with that, I would now like to turn the call over to Richard Horowitz. Good morning, Richard.

Thank you, Rich, and good morning, everybody. Thank you all for joining us this morning on our third quarter call. I will begin today’s call with a brief summary of our three and nine-month results and how this data compares to the same periods from the prior year. However, I direct you to our release earlier today for more information. That release this morning presented P&F’s balance sheet, statement of operations, per share data along with most of our management’s discussion and analysis. Before I get started, I wish to emphasize, as I always do, that the purpose of today’s call is solely to discuss and review the company’s results for the third and three-month and nine-month period ended September 30, 2018 only. As such, I must insist that you please confine your questions to the topic at hand. Thank you in advance for your cooperation. After my overview, I will then ask Joe Molino to briefly review cash, key cash flow information, and provide an update on any key events affecting the company. After which we will move to our Q&A session. The company’s consolidated revenue for the three-month period ended September 30, 2018 were $17,662,000 compared to $15,782,000 during the same period in 2017. As discussed in the company’s earnings announcement released earlier today, as a result of our adoption of the new revenue recognition standards which became effective January 1 of this year, certain expenses that were previously accounted for in our SG&A cost prior to the adoption are now accounted for as a reductions to our revenue, gross margin and SG&A. While the adoption of this new accounting standard did not affect our net income, it did cause Florida Pneumatic’s revenue, gross profit and SG&A that decreased each by $321,000 for the three-month period ending September 30 of this year. Florida Pneumatic’s third quarter revenue was $14,035,000 compared to $12,295,000 during the third quarter of last year. We increased our retail revenue by more than $1.1 million to $6,343,000 from $5,212,000 last year. This improvement was due to Florida Pneumatic’s shipping and rollout of the new and improved pneumatic tool line to the Home Depot. Further, I am pleased to report that when comparing this quarter to the same three-month period a year ago, aerospace revenue increased by 17.6%. Lastly, when compared to the three-month periods ended June – September 30, 2018 and 2017, our industrial and catalogue sectors improved 29.6%. Hy-Tech’s third quarter 2018 revenue improved to $3,627,000 from their third quarter 2017 revenue of $3,487,000. The primary component of this increase was increased shipments of new products in connection with our engineer solutions initiative which continues to strengthen. I wish to point out that open orders for this product category, as of September 30 of this year, was approximately $1.8 million, nearly doubling the level at June 30, 2018 and move than $1 million greater than the level at September 30, 2017. The company’s third quarter of 2018 consolidated gross margin was 37.4% compared to 35.4% for the same period in 2017. The most significant factor contributing to the improvement occurred at Hy-Tech with margins improved 5.6 percentage points. This increase was due primarily to great absorption of its manufacturing overhead costs driven by greater throughput throughout the facility, product mix and price increases on certain product lines. With improving product mix and its inventory, Hy-Tech has also been able to reduce its obsolete and slow-moving inventory changes, charges, this quarter compared to the same period a year ago. Additionally, as noted earlier, Florida Pneumatic’s gross margin was impacted by the adoption of the new revenue recognition standards which caused a 2.3 percentage point reduction in their gross margin. Our third quarter 2018 selling general and administrative expenses was $5,736,000 compared to $5,352,000 for the same period a year ago. As a percentage of revenue, it declined to 32.5% compared from 33. 9% from the same period in the prior year. In the third quarter, we recorded a charge of $28,000 relating to an increase in the fair value of the contingent consideration payable to the seller of Jiffy. Lastly, the company’s interest expense during the third quarter of this year was $66,000 compared to $50,000 compared during the third quarter of 2017. This increase was primarily due to higher interest rates and increased revolver borrowings and increase in the amortization of debt issue costs. Taking all the above into consideration, I’m pleased to announce that for the three-month period ended September 30, 2018, we are reporting pretax income of $767,000 compared to $171,000 for the same period one year ago. On an after-tax basis, we are reporting third quarter 2018 net income of $541,000 compared to $5,000 in Q3 of last year. Third quarter 2018 basic earnings per share were $0.15 compared to no earnings per share for third quarter of 2017. Diluted earnings per share this quarter was $0.14 compared to, again, no diluted earnings per share for the third quarter of 2017. As a reminder, I refer you to this morning’s press release for additional information. At this point, I’ll ask Joe to please give us some further information. Joe?

Thank you Richard. Capital expenditures during the nine-month period ended September 30, 2018 were $1,757,000 compared to $444,000 during the same period in 2017. Significant non-cash items affecting our cash flows during the first nine months of 2018 were depreciation and amortization of $1,020,000, amortization of other intangible assets of $531,000, stock-based compensation of $201,000, change in deferred taxes of $292,000, allowance for doubtful counts and chargebacks of $242,000, increase in the estimated fair value of contingent consideration payable to the seller of the business assets of Jiffy of $86,000, amortization of debt issue cost of $71,000 and amortization of costs for contribution to customer of $42,000. Additionally, significant components have impacted cash provided by operating activities during the nine-month period ended September 30, 2018 were an increase of $2,914,000 in accounts receivable, an increase of $618,000 in inventories and accounts and accrued liabilities in the aggregate increased $551,000. With that, I’d like to turn the call back over to Richard. Richard?

Thank you, Joe. In closing, I would like to acknowledge all of our employees and management for their continued outstanding performance. People make a business and we have a very good group of dedicated employees. That’s the end of our report today and we’d be happy to answer any questions anybody might have now. Operator?

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

Okay, thank you. Several questions. I’ll ask a few and then back out into the line for others to ask. If you could, could you expand on a little bit more on the higher aerospace revenue growth that you’ve been able to enjoy? Is this one time with respect to certain programs or something you feel is a sustainably higher level of activity that Jiffy and or P&F, as a whole in aerospace, can enjoy and also if you could discuss the prospects for further growth?

I would – we would expect this is not a blip. It’s – it was a key decision that we made when we bought Jiffy that has pushed us further into the aerospace industry and the aerospace industry is doing well and we’re well positioned with Jiffy and the overflow with Florida Pneumatic in that area. So we expect that I can’t foresee the future, nobody can, but we are placed properly there and we expect to do well. Joe?

Yes, I just would add two things. I think over time we have greatly added to our ability to get product out the door in a particular month. I would say that – Jiffy, excuse me. When we first bought the company they had some restrictions around how much they could actually build in a month, we’ve got a new GM out there and he’s done a great job of increasing capacity so we had a tremendous backlog, that was never the issue but we had quite a bit of a lead time. So, he has worked down some of that inventory, or excuse me, some of that lead time. Having said that, orders are still very good and I’d say there’s also a second effect which I believe I mentioned on an earlier call, or we mentioned on an earlier call, it seems like there’s a bit of a halo effect around the Florida Pneumatic aerospace product as a result of now being associated with the Jiffy brand. We’re seeing a dramatic improvement in all blind Florida Pneumatic aerospace tools that we had been selling for years but I think we got a little bit on the map now that we’re part of the Jiffy brand and people are associating the Jiffy quality brand with Florida Pneumatic which is not an – we did not expect that but it is absolutely happening out there. So I would throw those two things out there as also part of this.

And while we’re on Jiffy, just to follow up, the Jiffy acquisition was when – in other words, when did it or when will it anniversary?

We bought the company April, I believe of 2017.

So we’ve already anniversaried this, so we’re at a higher year-over-year level post acquisition.

Dramatically, that is correct. Dramatically.

That’s why I was asking…

I’ll just add one other thing that they had a reasonably nice backlog when we bought the company. That backlog has increased fairly substantially since we’ve bought the company.

Right, so – so that’s why I asked about and you’ve now reinforced the issue that this is a sustainably higher level of activity. And can you comment at all in terms of the prospects for future growth because on prior calls I’ve asked about this and what you said – one time is going to tell because these are generally long tail or long duration RFP’s to get designed into programs. Have you seen any programs where your tools have been excepted into or designed into programs yet?

All I can tell you is our inventor – our backlog, excuse me, our backlog is at almost a record high for the company. I can also tell you that we, as Joe mentioned, are producing more than they had before we bought the company and before we hired a new general manager and made some changes with capital equipment. So, it’s a function of – if we get orders and we have a big backlog right now and we don’t see any reason why orders won’t continue at the rate that we’ve been experiencing the last six months or so. Joe, do you want to...

We are – we do plan on adding a fairly – not an insignificant number of new offerings to the line throughout 2019. So we would expect to have – we fully expect those to be accepted in the market by our current customer channel.

Okay, and is there – can you discuss, Pneumatic’s is a small product line acquisition that was purchased more recently, can you discuss well that sits inside of Hy-Tech, any crossover that’s going on between the Pneumatics products and your Jiffy customers and the Jiffy products and then Pneumatics customers, the Pneumatics customers having tend to have been more, I don’t know if they were more hobbyists versus the high – the big airframe manufacturers for Jiffy.

I’ll let Joe put more color into what I’m going to say but the Pneumatic’s acquisition, which was a small, a very small product purchase for us, has not born any fruit that we were hoping it would yet. Having said that, we are – it’s a much more engineered, highly engineered, product and so it goes through way more scrutiny before people push the buttons and buy a – we’re talking to the biggest aerospace companies on the thing and we’re hoping in 2019 to have some traction there but there’s nothing that we can tell you right now that is meaningful. They’re doing the business that they did when we bought it which was insignificant. It always was and all of that stuff but I expect – we expect and hope that in 2019 we’ll have something but it’s been a very slow go up to this point. Anything you want to add?

I would just add that beginning in January we have concrete initiatives that will be begun where we will be marrying up the resources between Florida Pneumatic, Jiffy and Hy-Tech to go after the aerospace market. So, fully expect that to bear some fruit but it will be a few more quarters before we have much to say about it. But the plans are in place and will be launched.

And when Richard – you talked about how to date so far the Pneumatic’s product lines not exhibited the certain kind of growth or synergy, but it was exhibiting the cash flows that it was when you bought it. Based on the cash flows of the product line when you bought it and the price paid, can you give a little bit of a feel for the hurdle rate or the – or that you’re getting adequate returns on the purchase so far, not counting, obviously, hope for growth opportunities?

We’ve already returned to the shareholders a multiple of the purchase price.

Awesome. All right. I’ll back out. I have other questions. Please come back to me.

I don’t believe that anybody else on the...

Okay, then I’ll ask another set and maybe someone else will get brave and hit the button. On the Home Depot side, we have the new and improved line of Pneumatic tools you guys have shipped out. You’ve given the guidance that there was the – fill the product lines and until you get reorders and all of that there wouldn’t be as high of a level as the surge of revenues from Q4. But do you have any visibility on the Home Depot consumers acceptance of the newly refreshed product line yet?

No, we do not.

No, it’s just – we just kind of like introducing – they just introduced in the last 45 days or so.

Yes, we generally get that but it – not yet.

Okay. And when you get it, is it – when you get that information is it just based on reorders or how does this work with Home Depot versus like Sears where you get to see the follow-through to the channel and all of that?

Andrew, I don’t know to what detail, but I know at least at the gross level we will know what their in-store sales are. I don’t remember if we know it by tool product, by SKU, but we certainly know how well it’s doing, how well the program is doing at the store level.

There’s no reason to expect that we won’t do as well, at least as well, if not better than we did with our other line. Having said that, when we went through the – I guess the – what do you want it call it, auction or rebidding of the line last year, they took certain – Home Depot made a decision to also bring in other name brands without the Husky label on it of tools. So we are expecting a dilution, not dramatic but maybe perhaps 10% dilution of our Husky line to Home Depot because of that but we don’t know and that’s just our own projections but we don’t really know that yet.

Do the other lines include – are they bringing in Craftsman?

No, no.

It’s not Craftsman. It’s Home Depot.

Yes, I know. I understand that but Craftsman is now separate and I was wondering if Craftsman is exposed to risk.

No, no, no.

To our knowledge there’s no Craftsman product at Home Depot.

No, no, no. And I will remind you that we do sell Craftsman to Stanley Black & Decker.

Oh you still do?

Since you mentioned in Craftsman I’ll just make – I didn’t mention in my comments earlier, but I don’t think it’s a – I don’t think it should be ignored. I said in our press release that Sears, P&F came out – P&F and Florida Pneumatic came out of the Sears arrangement which was lasting for the better part of 30 years, I’m going to guess; very, very wholly we got rid of – we sold every piece of our inventory to them. We got paid every single dollar that we had and we pulled out last year with the vision of what we thought was a ticking time bomb. So we got out of there 100% whole and on top of it, we’re selling a little bit to Stanley Black & Decker was a pick-up on top of that for the Craftsman so...

Yes, and subsequent to that, are you seeing growth in your revenues or unit sales into Stanley Black & Decker on some Craftsman line?

No, none. No, no, no.

No, it’s flat.

Yes, and do you expect that eventually they would pair you out or that you will have an ongoing relationship?

We don’t really get that information from them but our – we don’t really know. It’s – it would be – I would be conjecturing. I would think that at some point they would do it themselves but I could be wrong.

Okay, and – touching on these product lines, because this is generally the product line sub-segment that has the issue with the tariffs. So the first round of tariffs, based on whether you negotiate what you negotiate with Home Depot or your other distribution channels, you’ve been able to pass through those tariffs, is that right? This is the first round?

The round from the summer, yes.

Yes, and the second round, which has just been implemented according to your press release you don’t have the visibility yet or what’s the timing and the general feel you have regarding this more recent round which is a little bit more all-encompassing over many more products, yes?

Yes, it’s way more encompassing. The first round was a very limited group of products of ours. The second round was essentially everything that we bring in from China and sell to Home Depot and others and it’s – I don’t think we’ll have clarity till the beginning of the year but it’s definitely much more of an issue than it was with the first one, without a question.

And we’re in conversations with our vendors right now.

With our customers and our vendors.

Yes, customers and our vendors, I guess.

And obviously, I would think your customers are faced with this, with any generally offshore sourced vendor that they’re using. So, is there something that you think you’ll be able to work out something mutually amenable between you and let’s say, Home Depot?

Well, again, it’s too early to tell but we would expect that we – both parties want to try to work it out as best as we can but I would also note that anybody who buys these products who sell these products are coming from China, essentially, at the competitive prices that we’re at. The Taiwan versions are dramatically more expensive so I don’t know if there’s a better solution for anybody buying the product but we – Home Depot and we are committed to working through this and talking through it and we’ve had numerous conversations to be followed by numerous more conversations in the next 30, 45 days and when we have something to report, we will.

Yes, at the next conference call, I’m sure we’ll have – we’ll be able to give you a full update.

Yes, we’ll give you certainly a full update by then, that’s – that’s months away.

And under the new provisions, when would the tariffs start to bite margin, Q1 margins?

What would they what?

When would the new broader line, round of tariffs, start to bite into your margin if you weren’t able to pass things through? Would that be Q1?

This quarter actually.

You’ll see it in Q4.

Yes.

It would be Q4 if it happens, okay. But it’s not – it’s not happened yet for you?

No, no.

Okay. All right, I’ve got more questions, I’ll back out.

And we also.

Thank you.

[Operator Instructions] And I do have a follow-up question from Andrew Shapiro with Lawndale Capital Management.

All right. I’m going to ask another round but I’ll back out again if – before I take away too much oxygen. On the – when you refer to the industrial catalogue segment is that where sales via Amazon are classified and fall into or what sectors are your Amazon sales included in?

Amazon is part of automotive.

Oh, okay.

Industrial is a separate thing and industrial is doing extremely well.

We sell – there’s probably a few spillover industrial tools that make their way onto Amazon but I – they’re not that material. It – the Amazon relationship is primarily in the automotive tools.

Okay, and then to what do you attribute this nice growth in industrial catalogue and do you feel that is at a new sustainably higher level or subjective blip?

The economy is certainly not hurting it. Businesses are doing better, that does certainly have a bit to do with it and we are concentrating very much so on the industrial sector for the last couple of years and I do think though we can’t substantiate. I think that the fall over from the Jiffy thing is having some small impact.

I would add that with oil at $70.00 or $80.00 a barrel, there’s a fairly robust level of oil and gas expiration going on and so we’re certainly taking advantage of that.

Now that’s industrial catalogue – this is outside of Hy-Tech though, right?

That’s correct.

It’s [indiscernible]

But Florida Pneumatic absolutely sells into oil and gas.

Okay.

In the industrial area.

All right, great. And then on the automotive, that’s a dipped into – what do you attribute the decline too and what if anything can you do to address the weakness or it’s beyond actions management can take?

It’s – it’s the minimums in the overall scheme of things, it’s just a question of timing I’m going to guess. We are in the automotive field and if they’re busy we’ll be busy.

I think there has been some management ownership turnover change in two very large automotive distributors in the last 12 to 18 months and I think that’s had a little bit to do with some of the disruption.

Okay, and then overseas with Universal, is that mostly currency headwind or are there other unit and local currency unit sales volumes and issues impacting your European toe-hold?

Yes, I would say the biggest impact there has really been the Brexit affect and the great deal of uncertainty that surrounds a lot of the economics in Great Britain and I – and a little bit of currency – the currency bounces around quite a bit so it’s steady business. If I had to pick something that was giving us a little headwind it’s probably more currency than – excuse me, more Brexit than anything else, and we did – I know the numbers aren’t big but we do have quite a large share of the automotive market over there. So it is difficult to grow that with the suite of tools that we have right now just in the United Kingdom. So we’re – we’ve got some initiatives around that that will begin in January and we’re hopeful that we can move that forward a bit.

Now with that large market share in England, you’ve talked to this as being kind of a foothold and with Brexit maybe even more important to put forth and gain beachhead so to speak if nothing more and distribution into Europe. Can you update us on any progress there or disappointments, successes?

There’s really no progress there but I can tell you that we’re allocating some resources to that beginning in the first and second quarter of next year so we’ll have maybe more to say about that probably mid-year or something. Yes, we do have – we do have an executive that we’re bringing on board in the beginning of 2019 that will have quite a lot on his plate; aerospace, oversight over UAT operation and we’re pretty excited about him and his background.

This is an individual stationed in Europe.

Yes, he’ll be in Europe. So, we’ll have more to say about that as time goes by but we’re pretty optimistic about his ability to help us out there across a number of products and markets.

Okay, and on a previous call you spoke of a suite of tools inside of the AIRCAT technology or AIRCAT brand targeted towards bodywork and that the feedback was positive but you’d have more takeaway on it down the road? I don’t know if it was a quarter or two I asked about it and I don’t know if enough time has passed that there’s an update on that progress or further feedback or if it’s de minimis and not worthy of...

Yes, it ends up being – it ended up being a pretty niche product. We were hoping that perhaps it would expand dramatically. Unfortunately, a great deal of that goes – that market is dominated by a distributor who I mentioned earlier is having some issues with change over in management and change over in ownership. I don’t think that that product is going to be really much to talk about. It will be a nice little product line, maybe a few hundred thousand bucks a year but it’s just not – we were hoping maybe it could be larger than that but it does not look like it’s going to have a big, big impact on the automotive operation. Still happy to have it, it generates a nice margin but I think there are other things that are going to be more interesting to talk about going forward.

Okay. Then moving on to Hy-Tech, I’ll back out in the queue, but come back to me.

Don’t back out, Andrew.

No one else is on the – go ahead.

No one else, all right. Here’s Hy-Tech questions then if you don’t mind.

Sure.

So on Hy-Tech, with a nice growth of OEM sol – OEM engineered solutions and the expectations of even further growth, are there any more notable subsegments or industry subsectors within this OEM solutions which was much more of like a diversified industrial product line of different things for you worthy of a call out yet?

Well, I will mention a couple the markets we’re in and then I’ll comment on them. So a couple of the markets that we’ve been able to penetrate with our motor technology and just air-powered technology or pipe cleaning and cutting, food processing, logistics equipment. These products lines or these channels have nothing to do with each other and half a dozen or a dozen more opportunities have nothing to do with these. So, I don’t even know if it’s worth mentioning, it’s not worth mentioning, what they might even be because they’re all over the map. So, these air motors are inside of all sorts of things and there isn’t any one market where I could say, well we’ll just attack that because that’s where all of the opportunities are. It’s just not like that. It’s – they’re everywhere so there’s not much more to say. I suppose if we stumble across a market where the opportunities are in the millions, maybe it will be worth calling out but I think it’s just going to end up being, and I don’t mean this in a bad way, just hodgepodge of different applications for our technology and our know-how.

Okay, so then when does the OEM engineered solutions segment of these hodgepodge altogether get its own line? I mean, I appreciate your breakout in the press release, but I was wondering, when does it grow and grow to a kind of segment where it gets its own line item or breakout inside of your Hy-Tech tables or is there a line item there for it already?

Yes, we’re considering that for next year Andrew. We’re just going to see how it goes for year-end, and we’re going to take a step back and along with seeing how things go with aerospace and Hy-Tech, perhaps we’ll have some more detail around the – what we call ATP now. But just sort of stay tuned on that. So it’s certainly something we’re looking at.

Okay, and with respect to, I guess we’ll call it the other areas of Hy-Tech, one of the issues was a capacity constraint was with respect to manpower, in particular, finding the right supervisors so that you might consider adding another shift. Has the status of that changed and are you out there actively seeking an additional supervisor, etc.?

We are. We have not been able to find a second shift supervisor. Having said that, with the advent of some other people in middle-level management in manufacturing, some improved processes and a new ERP system that should be up and running here before year-end. We should be able to improve capacity without a second shift. Not that we wouldn’t consider a second shift or continue to consider it but we are – I don’t know how constrained we really are right now at the moment.

Okay. But – now is there backlog you run or have backlog at Hy-Tech or is it all more shorter duration?

We have a backlog. We have a backlog and it’s a very sizable backlog. It’s probably as sizable as I ever remember it being and my memory only lasts about three days but honestly, just joking around. But, no, we have a very, very substantial backlog in Hy-Tech.

And is that backlog – so it sounds like the backlog is up from last quarter or prior year or...

Dramatic – dramatically, yes. Dramatically.

And when you...

It’s not all going to be shipped tomorrow, it’s not all to be shipped tomorrow obviously some of it’s three months, six months – but it’s very promising.

Andrew, some of where that’s come from is nailing down a couple of these accounts in the markets that I described earlier such that these customers are giving us six and 12-month blankets. So the product is not – it – it’s business we’re going to have going out for quarters which is why – I mean, we’re happy to have it, we’re happy to have it in the backlog but it’s not a situation where we’re concerned that the backlog is so high and product is late.

Yes, and I’ll just say that the engine solutions – if you get an order then you first have to make the dyes, I mean, you have to first – it’s a new product. It’s a highly engineered product so it requires work behind the scenes on our end before we can actually do the shipping so that’s a couple of months late lead time in that regard. But having said all of that, we’re – we don’t see for the foreseeable future our sales diminishing at all at Hy-Tech.

That’s good and has oil and gas returned to its former level or that’s also a potential...

It has but it’s – it has but it’s really honestly a very small – it’s a much smaller – by design in the last two years. By design it’s a smaller part of our...

We have shifted emphasis to the areas where we can grow as evidenced by the growth rate you see in OEM engineered solutions.

Oh, yes. No, no, that’s outstanding.

Our opportunity for growth there is just so much higher than it is for the oil and gas business so that’s where we’re throwing all of our talent right now.

Well, oil and gas is going to do what it does but has it returned to its former levels?

Yes, I would say the answer – the business, the industry, is but I don’t think our business has. No.

Yes, I would say that – yes, I’m not sure that it ever will.

I’m not sure it ever will to be honest with you.

that – it kind of goes without saying that that market as it moves and evolves, you need to develop products to move and evolve with it and we have systematically decided not to throw engineering at that. So, all of our products is capable, there are other products out there that perhaps are superior that we could match but, again, we would just be treading water. We decided it’s better to harvest that business and throw the engineers and money at other things that can grow a lot faster.

Okay, now during this quarter, the number of shares bought back under your 10b-5 daily program was lower than prior quarters and I’m just trying to get clarity because I believe the bulk of that is that the old authorization expired and the new authorization – there was a gap in time before the new authorization kicked in so during the quarter ended September, right, can you or your general counsel here just apprize us of when the old program stopped, the period of time you really weren’t able to be in the market and then when the smaller amount of shares started to be acquired again during the September quarter?

Yes, I believe these dates are pretty close. August 23 or 24 the previous plan expired and we’re back in the market buying under the current plan, September 17 I believe.

Okay, so about a – 1 month of the quarter of the three months you weren’t able to be in there?

Correct.

Okay. But you’re in there now, you’re operative, you’ve got a bunch and presumably the month of October and index selling and everything else that went with it provided you your opportunity to get your daily – your daily limit which based on the volume we’re seeing the regular daily volume on the company stock is around 800 shares a day is probably all you can do but you can do that much, does that sound right?

Yes, yes. You’re in the zip code of what we’re able to do.

Yes, well, 800 shares a day if you’re able, if you’re able to do that everyday pursuant to the other buyback, limitations, 4,000 a week, 16 a month, it’s not chump change for this company’s small shares outstanding. So...

Correct. We agree. Correct.

Obviously I would think based on your comments of the cash flow generation of the company now and its perspective cash flow generation it would seem that this is a program you’re as enthusiastic about as we are.

Yes.

Okay, just wanted to confirm that. Talking about other areas of potential corporate allocation of capital to enhance the company’s returns, can you update us a little bit on the – where you’re – you mention on the prior call that you focus on a bunch of different synergistic tools area for acquisitions but there was one particular area for acquisitions that you had been focusing on or working on but didn’t want to discuss it yet. Are you at a position yet to give a little more clarity on your areas of focus now and if they continue to be where you were focusing or that particular gem – has that opportunity has gone elsewhere?

Everything is – I mean, if there’s anything to report of course we would be reporting it. So, I really – I can’t add any color to that and I don’t want to be mysterious but nothing to add on that. Having said that, we are moving – we always spend a lot of time on it, M&A work and it’s continuing. Nothing is dead that we’ve been working on but nothing is ready to have any kind of formal announcement or anything of that nature yet. I don’t know if that answers your question but that’s the best I think I, we, can do on that. – serious, I apologize.

I just want to reiterate, we are active, we are out there, we are talking to people. That activity level continues.

Yes.

Okay.

But we haven’t – whatever we’ve seen is – we haven’t seen companies of big, in our little world, big size. It’s been like more smaller, more point of specific product lines. It’s nothing – we haven’t got anything really, really – like a Jiffy level that we’re working on.

Well, I mean, if you get a Jiffy level you’re buying a bunch of fixed assets to go along with it and it’s a big capital allocation that you’re doing. It’s not like you’re sitting on a ton of cash, you’re going to make your appropriately levered purchase of that. How do you – just – that’s nice and that would be accretive and you have your hurdle rates, etc., for that and we’d love for you to find another Jiffy, but where or how do you see driving this company’s earnings per share, or let’s get it to, we’ll call it, pretax income or even EBITDA here, okay, from its current return on asset that you have to a higher return on asset? Historically, I – as you know, I’ve been a shareholder of this company for, and at lower cost, thankfully, but more than two decades and I’ve seen this company generate earnings per share and have earnings per share power far higher than where we are right now. What do you see outside of another accretive acquisition of a Jiffy, in other words, of a business. Is it an acquisition of a product line, is it you have underutilization of capacity and driving more capacity utilization, revenue growth, what do you feel are the main drivers or opportunities for you and the board to grow this company’s earnings per share higher than just the $0.15 quarterly rate?

Yes, I’ll say a few things about that and Joe can add anything he wants. Firstly, when we made a decision the reason our earnings per share went down from what they were historically, and you know this because you’ve been here a long time, we made the very conscious and right decision to sell nationwide to sell – to be a more focused company. So we took out a lot of revenue and we took out a lot of earnings but on the other side of it we received a lot of cash and paid down all our debt, we became a very strong balance sheet company due to that. And it was strategically a better thing for us to do. The way for us to move the company and grow the company is through acquisitions and through internal product extensions or product additions in our companies that generate more revenue and that’s exactly what we have been doing late of the last couple of years and lately as well. Joe alluded to a few of them earlier and those are the ways through acquisitions and through internal product extension and that’s going to be the way we go. I mean, we’re in the markets. There are no other markets that we’re not in. We can maybe through acquisitions or through product extensions we can get people into those markets but we’re in every market now and with Jiffy we got more into the aerospace, it helped us. So – and AIRCAT helped us dramatically with automotive so we can’t forget that either. So, Joe do you want to add anything to that or...

Everything you said is true, I would add also, I think, I think, that there’s a big opportunity for us in the long-run in Europe. I mean, we were – we really are just scratching the surface there and if this person we’re bringing on board is as good as I think, I think we’ll have more than a total in Europe in a few years and what comes along with that is obviously all of the markets in Europe that we serve here in the U.S. in a very large aerospace company headquartered in Europe that we’re just trying to knock the door down on. So I think that – and then there’s probably a market niche of a technology that we’re – and I won’t get into what it is, but a technology we’ve got some expertise in that I think we possibly, possibly, could roll-up a number of entities into. I might have more to say about that in a few quarters but – so I would just add, I’m really looking to Europe to be our big opportunity both in aerospace and just in general in the next five years or so.

So – but my takeaway, what I’m hearing you, is that higher earnings before were driven from a more highly levered balance sheet and that we’ve de-levered with the disposition of what was generating those returns but we haven’t reallocated all of that capital, so to speak?

That’s true. That’s true.

So wouldn’t that then argue for then prospectively a more aggressive buyback with what you have because you’re saying – we’re saying that well, because we’ve so greatly de-levered our earnings per share is where it is and wouldn’t necessarily return up to the $1.50 a share level without gearing.

But Andrew, you just said a few minutes ago we’re buying what we can buy. So let’s just take this to its logical conclusion, if we do this for another year and then we re-up the program again and even we re-up it two or three times, you can do the math yourself on how much we could possibly buyback. We’re buying almost everything we can buy right now. So how could we –

Well, perhaps a tender, I mean, in other words – What you can under a 10b-5 and I appreciate that, I’m not being critical, but that’s – perhaps it is then a bigger chunk and taking the legal and appropriate steps one has to take to do a bigger chunk and – or –

Andrew...

I mean, Tim Stabosz, he seems to want to buy and sell this stock in blocks all of the time. He – one day he likes you and the next day he wants to go move and buy something else. So, there may be block opportunities out there. I had asked frankly on the last conference call, you said you would get back to me about it is, like who at UBS we can talk to about those kind of block opportunities to direct someone to or go into that?

Andrew, I’ll let Rich Goodman, our lawyer, say something but before he does, we talk about this at every single board meeting we have and we never ever don’t talk about it, but it’s a balance and I’m sure you can appreciate. We have – we talk about the dividend which continues, and we’ve entertained different scenarios with the dividend, nothing about getting rid of it but only should we go up with that or should we buy more stock and we talk about every option available to us and I think we’re still at the mindset that we want to save gun power for if and when something really material comes along so it’s a balancing act and at some point we’re going to – we would say, we’re not at that point yet, but at some point we may say we’re not going to be able to buy another company for now so maybe we’ll have to look at other things. But all I’m trying to say to you is every time we meet, we discuss it at great length. We don’t just talk about it for three seconds and I’ll let Rich finish.

I was just going to say one point. I think on the last call, we suggested if anyone has any opportunities for selling blocks of the company to reach out to the company and then we would then coordinate with UBS or whoever it might be to see if we can buy it back. That was the advice we gave last time.

Yes. Although some people – some people may not – some people might be open to selling their blocks but don’t want to deal with you, and don’t take this wrong, the last visible big block purchase was buying out Stabosz with strings attached, right? He had to have the non-disparagement, which by the way not – that’s totally understandable but it also had a standstill arrangement embedded in it that prohibited him from coming back in and buying shares for three full years in the front – in the open market which I personally – I am critical of that because you shouldn’t want to get in the way of repurchases, you may want to get in the way of disparagement but I think people may not want to necessarily sell the block and involve the company in the sale of the block as much as they would either in a Dutch tender or a blind tender or being able to talk directly with UBS and just arranging for the block trade in an anonymous manner.

Yes. As I said, we talk about it at each board meeting, we have a board meeting next month and we certainly would be talking about it and we certainly will. But – and we asked this, Rich said, we asked last quarter for anybody who knows of anybody to sell stock. Maybe even Andrew you may want to sell some stock.

Well I don’t really want to comment about that on the public call but I would like you to give me a call, I have some thoughts for you about it.

Okay.

And I’ll explain my thinking, but I do – I would like to see the company’s acquisition of shares to be at a pace and a size that you guys want it to be at because you profess that there are rules that have gotten in the way and I think of ideas that might be able to at least accelerate the pace to the level that you and the board are comfortable with that may be at a level less than I’d like to see. I’m not saying it is, but it sounds like –

All right, I will...

You’re not getting the level you want and I have ideas for you.

Yes, okay. I don’t mean to cut you short with it but let’s go back to the – if you have any other questions about the quarter, but I will absolutely instruct Rich Goodman to call you before our board meeting and he can discuss all of the ideas you may have and we’ll be happy to talk about it at that time, more than happy to do it.

Yes. Well, we’ll probably call you offline even today. And then this – the ASC 606, when you provided the current revenues pursuant to ASC 6060, remind me again if the prior year revenues that we’re comparing to are adjusted or reflect that or what we should be doing so we’re comparing apples to apples because I know you did provide some breakout in your press release.

Right, so prior year does not include re – we did not restate the prior year. So if you want to – and I think this is – is it in the release or is it in the Q? Do you want to...

The release.

Okay, if you want to make the adjustment for Q3, it’s a 320 – yes, you have to reduce the prior year. Okay, so in Q – if you want to compare Q3 of 2018 to Q3 of 2017, you would have to reduce revenue in Q3 of 2017 by $224,000 and gross margin by $224,000 to make it apples to apples. And then for the year, you would reduce 2017 revenue and margin by $645,000 to make it apples to apples.

Okay, all right. So that makes some sense. And the other – the thing is – I guess the other final thing I have is you guys have improved your sentiment about the company’s prospects here on the call and in light of the fact that you kind of have something to talk about in what you’ve been doing, you’ve been delivering, etc., is that has the topic come up again and is it a regular topic within the boardroom regarding the potential selective investor relations activity whether it’s a virtual microcap Web conference that talks about the company or if you go to some local small microcap investment conferences where you’re in front of microcap focused investors to tell the company story to?

Again, I don’t want to be dismissive, not even a little bit because we weigh your words and your suggestions at all times, but we – when we talk every quarter about the stock and all of the other stuff that we talk about that as well and the board sentiment has not been to do that but we talk about it every quarter. So, if there’s anything more to it that we think that this can be, of course you’ll be – you’ll know like everybody else but I don’t think the sentiment has been there to do that.

Having said that Andrew, I had one or two conversations with some people running some conferences in the last few months after having conversations I determined it just wasn’t going to work for us. Those particular conferences – I’m happy – yes, I mean I’m happy to take calls from people that have ideas about conferences but it’s not as if we completely dismiss it if someone told me something that was compelling about a conference, I would bring it to the board and we’d have a conversation. But we haven’t thrown the idea out completely but we don’t seem to see a fit between what’s out there and what might work for us.

Having said that, we absolutely discuss it at every meeting.

Yes. Well, offline, Joe, when you and I talk about the UBS thing, maybe let’s talk about what the factors were that didn’t make whatever opportunities you were looking at attractive and see if you might have some ideas of what might be better meets your needs that might do this. Because I think the practice of a management and board putting together a non-deal road show, whether it’s presented through, again, whether it’s presented through the Internet or a conference call like this or if it’s presented via in person, it’s not a bad exercise to go through periodically anyway.

Yes. Okay, got any more questions Andrew?

No other questions.

Okay. Thank you for your time. I really do appreciate it, and we all do appreciate it. And we all value your opinion, so thank you for your time.

Great, thank you. Bye-bye.

That will conclude today’s question-and-answer session. I will now turn the conference over to the company for any additional closing remarks.

Okay. Thank you everybody for listening today and for your comments and suggestions, and we will be in touch with a conference call in the fourth quarter early in 2019. I hope everybody has a good holiday. Thank you.

That does conclude today’s conference call. Thank you for your participation. You may now disconnect.