Good day and welcome to the P&F Industries, Inc. Q3 2020 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 2020 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 would 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, risks associated with the global outbreak of COVID-19 and other public health crises, exposure to fluctuations in energy prices, debt and debt service requirements, borrowing and compliance with covenants under our credit facility, disruption in the global capital and credit markets, the strength of the retail economy in the United States and abroad, risks associated with sourcing from overseas, importation delays, customer concentration, impairment on lived assets and goodwill, unforeseen inventory adjustments or changes in purchasing patterns, market acceptance of products, acquisition of businesses, regulatory environment and information technology system failures and attacks and those other risks and uncertainties described in the reports and statements filed by the company with the SEC, including, among others, as described in our most recent annual report on Form 10-K, our quarterly reports on 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 statements 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.

Good morning, Rich and thank you. Good morning, everybody and thank you all for joining us today for our third quarter 2020 results. I hope all of you are doing well under the continuingly difficult circumstances in life. And I would like to acknowledge this continues to be extraordinarily challenging times in terms of health and the economy and our thoughts are with all those affected by COVID-19. I would like to direct your attention to the company’s press release that was released earlier today, which includes the company’s September 30, 2020, balance sheet and statements of operations and statements of cash flow and discussions related to the company’s results of operations. In order to streamline this call today, I would like to note the following two items. Firstly, as we did for earnings for the last quarter, instead of management summarizing the company’s results and other information from the press release, as we have done in prior years, we will move directly to the question-and-answer section. And secondly, please be aware that we will only be answering questions directly relating to the company’s results of operations and financial condition. We must insist as you adhere to this procedure and management will not be entertaining any questions that go beyond the scope of this call. And with that, we will be happy to answer any pertinent questions anybody may have. Operator, you may open the lines at this time.

Thank you. [Operator Instructions] We will take our first question from Andrew Shapiro with Lawndale Capital Management.

Hi, good morning guys. I have several questions. I will ask a few and then back out into the queue to provide for others to be able to ask. I noted in this quarter’s results, in particular, in Florida Pneumatic, you had three of your sectors have greater than 20% sequential growth from last quarter. And I was just wondering if you felt that, that sequential growth was a function of seasonality or more a function of a rebound from an economic headwind or some other incremental demand either from new product or COVID-induced extra demand versus a rebound in volume from a prior slowdown and your customers just catching up. I am trying to understand to what extent such sequential growth is momentum and continuable, if you understand that nature of the question?

Right. I think I understand the question. Yes. I mean, nobody has a crystal ball. We don’t know exactly. We don’t – we are not lucky enough to get information from those customers in a way, because honestly I don’t know if they even know in a lot of cases, but the increases in those customers that you are referring to, we believe and some is mostly – it’s not seasonal. It’s not a seasonal thing. It’s catch up. And also in our retail side, we are getting an enormous amount of orders in a relative sense. An enormous amount of orders for spray guns, which obviously people are using for other things now than the intended use of that tool for like antiseptic and other purposes. There has been an extremely large demand at our retail outlet for that particular product and so we have had an awful lot of that. But generally speaking, I think that it’s pent-up demand and the only caveat to all of this is if the economy breaks down again and gets shutdown again by this enormous breakout now of COVID now, we are hoping that that doesn’t happen and we can continue to move in that direction. But we are very encouraged by what we have been seeing in that sector of the business. Joe, you want to add anything to that?

The only thing I would add is I would just reiterate that our entire company now, there really isn’t any seasonality to the business. That concept has kind of gone back a decade. There is no seasonality to our business anymore.

Okay. And regarding the spray gun for sanitization type of purposes, are you – do you have visibility into and do you have a sense of the particular industries that are creating this incremental demand for the spray gun percent?

No, we don’t. We really don’t. We get our orders weekly and we’ve been just getting them. That’s all we are getting.

And for a new – I guess this is a pneumatic powered kind of sanitizing spray gun?

Yes, absolutely.

So how portable then is the spray gun itself that travels around and just trying to get a feel for its broad use?

Joe, you can maybe chime in on that, but it’s portable. I mean it’s not light, but it’s definitely portable when people carry it around with them. Joe, you want to add anything to that?

Yes. There is a couple of factors. The size of compressor you might need to appropriately use a spray gun is not nearly what you would need to drive an impact wrench, certainly a sizable impact wrench. So, that’s one issue. So, the compressor itself might be small enough to be on wheels. And second, you can have pretty long holes. If you are just talking about spraying, because again you can build up a fair amount of pressure and 20, 30, 40, 50 feet a hose. I am not sure that’s going to make a big difference. So I guess to answer your question is it fairly – it’s fairly portable, because it’s really a much less – there is a lot less pressure required than you are driving – something will require quite a lot of torque.

Yes, go ahead.

Yes, they could – I mean remember, this is being sold at a Home Depot and places like that, people are carrying these products out. They are not – for the most part, they are not ordering them a lot even though they do sometimes.

So the bulk of this is Home Depot rather than your catalog work that you otherwise do?

I believe that’s the case. Am I right, Joe?

Yes and – yes and a good number of these people are going to be homeowners. And homeowners don’t have the largest compressors unless they have got a big rod shop. So again, I think there is a – we don’t exactly know where these are going. I know I have seen pictures of the spray – literally our spray gun being used to disinfect the theater, but we don’t really know exactly.

Right. So then as the theaters, interesting you say that because I know that industry. As the theaters expand from one or two showings a day to multiple showing a day, then their utilization of such sprayers would naturally then increase?

Yes, no doubt.

But again, we don’t know anything about where it’s going. We are not of that giving that information. So it would be a speculation on our part, Andrew.

Now that would be – this would be one of the things fueling the retail sector of the Florida Pneumatic, what about the automotive and industrial sectors, those also enjoyed a greater than 20% sequential jump from last quarter?

They are just very big resorters and we are not complaining, obviously.

But in terms of visibility and sustainability?

We don’t know the answer to that. We don’t know the basics of that. I mean it’s been going – I should say to you, it’s been going on for the better part of the quarter. So, it’s – I mean so we are hoping and expecting that perhaps it continues, but it’s just our own opinion again.

Okay. Well, we are in the middle of November. Did you see that continuation go into October and already?

Nothing has changed as of yet.

Q4 is, I think, moving on.

On the other sector in Florida Pneumatic, obviously, the headwind that’s aerospace and that’s primarily, I guess, Jiffy or I am not sure if Florida Pneumatic Aerospace is really something that’s separate anymore. Is it across the board in that sector?

It’s both. It’s both.

Yes, okay. And is it primarily – it’s primarily Boeing and Boeing suppliers?

Yes, I would say it’s primarily Boeing and Boeing suppliers. Is that correct, Joe?

Not exactly, but greatest percentage of it.

Yes, but there certainly has been a slowdown or at least there had been for a while in military production as well, right?

It’s trying to show a little bit of life now.

Yes. Now you mentioned in your release and then I will back out to let others ask questions. You mentioned in your release that you are encouraged about some opportunities on some mill and commercial aerospace projects that have been under development during the pandemic and you have samples ready. And I am assuming that if these samples were accepted, what happens is these tools then get specked into and approved for utilization again by manufacturers, servicers, etcetera in the aerospace industry, is that how it works?

Correct.

Yes, you can – yes, that’s correct.

Okay. And can you name some of the aerospace projects that are maybe publicly under development that you are trying to get specked into then?

I don’t think we could or we should. Really Joe, do you have any information?

No, we are not going to go into that level of detail, but I would say that the projects range across commercial and industrial or commercial and military and they are worldwide projects.

Okay. So you have been making some headway into that large airframe manufacturer in Europe then?

Yes, we are working on it.

Right. I am saying, yes, we are making headway with that. It’s a project. But now, of course, Europe is in a worse case in shutdown mode than we are right now. So we don’t know what’s going to be. UK is shutdown right now. Germany, parts of Germany is shutdown. It’s not the whole country. I think Italy is very close, we don’t know.

Andrew, if not for the pandemic, I am pretty confident we would be having some meaningful sales in Europe, but we didn’t.

Exactly.

Nobody did no visitors. There is no testing. It’s just literally in a holding pattern.

Okay. So I mean the pandemic is going to come to an end. The course of the disease is a two-week course and it will be overcome. So, the vaccines are on their way by next year. So that’s what we want to get a feel for is your securities are at less than 50% of tangible book value below net working capital. And as long as you are going to be generating sector contribution profit towards the entity and then the pandemic and the economies open up, then it’s a sizable and an interesting investment, which is why we are running this call.

Right. Yes, exactly.

Let me back out and I do have more questions. So please come back to me.

Sure. You got it.

Thank you. We will take our next question from Henry Dubro [ph].

Good morning, everyone.

Good morning.

I have two questions. With the approximate 15% decline in revenue third quarter ‘20 versus ‘19 has there been any reduction in the workforce?

Absolutely, absolutely.

So how has the workforce?

We have not reduced – go ahead, Joe.

Henry, we have reduced our workforce about 15%.

And when did that occur?

Go ahead, Richard.

Yes, it was staggered, but it was basically from May, I believe or June to August I guess. Is that about right, Joe?

Yes, the bulk of it was June, but there was some before and there was some after.

Right, okay. I have one last question since there is no detail into SG&A, I would like to know for the 3 months and/or the 9 months what amount if any is there expensed for the executive bonus or Horowitz bonus whatever you want to call it? I am talking the bonus that’s spoken about in the proxy statement and I assume…

Yes, bonuses across the entire company are dramatically reduced. So, there would be very little – I mean, I don’t know the exact number, but a very, very little small number.

Yes, let me just ask a follow-up to the Mr. Horowitz’s bonus. As stated in the proxy statement for ‘19, his bonus was set based upon a formula of fiscal ‘19 earnings before taxes, depreciation and amortization. Is that formula the same for 2020?

Joe, the answer is yes.

There really isn’t a formula. I don’t know that we use that term. And there is sort of a structure that has been used over the years, profitability...

One brief thing. It was based on achievement of a minimum target level of company profit calculated primarily upon the level of earnings before taxes, depreciation and amortization achieved by the company?

Henry, I would suggest that this is not a question for this call. If you have a question specific to this, feel free to contact the comp committee. The head of the comp committee their contact information and they will answer the questions as best they can.

But I am asking something pertinent to see if there was a charge or an accrual for this bonus in the quarter?

For the quarter, for the quarter? Well, that’s a good question. Joe, you can answer that.

All bonuses for the quarter, any bonus accruals would have been quite modest in the quarter. So they are not material. If there is anything, it wouldn’t be a material number.

Okay, okay, okay. Because as I read it, in order to have this, the company...

Henry, we answered the question. We answered the question for you. So how you read it, it is fine, but we answered the question for you. You have another question?

No, no.

Okay, thank you.

Thank you. [Operator Instructions] We will take our next question from Andrew Shapiro with Lawndale Capital Management.

Thanks. A follow-up on Henry’s questions on the workforce reduction and the more details about the company’s PPP loan, which your balance sheet shows a portion migrating from long-term payable now to current maturity long-term debt. The timing for your – first off, when you apply for forgiveness, is it the company’s plan to apply – I think it’s the 24-week measurement versus the 8-week measurement methodology?

Yes. Joe?

Yes.

Okay. And based on, I guess, your workforce reductions and calculations, first off, when is it you’re going to submit for the application, which then starts the clock ticking upon when the determination of forgiveness to come?

It’s – we’ll be – we missed it now, but I don’t – we don’t have an exact time when we’ll be doing it, but it will be in the short time. It will be sometime – I imagine it will be sometime in this quarter.

Okay. So based on that time, do you anticipate the decision on forgiveness and thus, the onetime bottom line recovery of the expenses associated and have already been recognized upon which the PPP loan funded to be a fourth quarter event or likely to be a first quarter benefit?

Joe, you can answer the question.

Sure. I would say, based on conversations with our bank regarding their internal process after we file the application and what we understand the timing is from the SBA, I mean, I’m guessing, but I think it’s going to roll into Q1. I mean I don’t know that for sure. I mean they can turn it around in a week, but I’m just guessing.

I don’t think that, that kind of efficiency is indicative of this program, to be kind. I mean they have a time limit. And it sounds as if, I mean, slam dunk applications, perhaps. But if you had some workforce reduction that occurred during this window, then there is going to be a bunch of calculating that the bureaucrats as well as the middlemen are going to have to calculate.

So, they don’t do the calculating, we do the calculating.

Yes, you do the calculating, but they do the verifying. Your amount is...

Yes.

Yes, okay. So that’s why it’s not going to be a one week turnaround. So that being said, do you feel based on the workforce reduction, but all the other expenses that are allowed to be included in that 24-week period that your payroll and the other allowed expenses will have consumed up and cover all of that $2.9 million?

Again, we are speculating, but I’m going to say that we’re pretty confident that 90% plus of this – unless there’s some surprise, 90% plus of this will get forgiven.

Right. But – so you’re not necessarily applying for an amount that’s in excess of the $2.9 million which gives you some cushion that would get you over?

Yes, there really isn’t a concept of applying for greater than the $2.9 million. Again, it’s kind of a little complicated on how it all works, and we’ve been working with some consultants to help us with it. So even though we had a workforce reduction, it did not affect, in my opinion, didn’t have a major effect on the calculation.

Okay, and so – alright. And then when the loan gets – the bulk of the loan gets forgiven and being it potentially a Q1 event, not Q4, to running out of time, what would be the account treatment for it on your income statement? Is it going to be something like an other income line? Is it something where you are going to do a reversal of the various payroll cost lines, which would obviously go into the gross margin and the subsidiaries and everything else? How do you plan to account for it and see this in the income statement?

It will definitely be a separate line item. I don’t think we’re going to be doing reversals of the various expenses. And again, we’re – there’s no assurance that this is going to happen. There’s going to be a lot of scrutiny around this forgiveness application. And who knows if there’ll be greater scrutiny with the next administration, assuming there’s a next administration. So – but again, assuming that it is received, it will be a some line item plainly visible on the space in the financial.

Okay. Well, it’s almost $1 a share. So it’s not insubstantial. So it’s – that’s why the reason I wanted to get into the nitty-gritty on it. Talking about Hy-Tech now, so Hy-Tech – sequentially, Hy-Tech had actually, improvement on ATP, but what’s called OEM had the sizable decline. And in aggregate, that resulted in a modest sequential reduction on the Hy-Tech side. Can you talk a little bit about what it was on ATP that has started to rebound and what it is in the OEM side that further saw a drop-off? And provide some color in both of those instances about what maybe sustainable and what is maybe like a onetime bitter pill and then things stabilize?

Yes, Joe. I mean, why don’t you discuss it? But…

Sure.

We don’t discuss customers’ names, generally speaking, but we can talk to you in concept. Go ahead.

Starting with ATP, I think it’s just a rebound of the very weak orders in the spring. I don’t think there’s anything special there. Again, ATP is very reliant on the oil and gas among other things. But in addition to oil and gas being down, everything was down in the second quarter. So it’s just a return to a little bit more of a normal level of orders, again, excluding oil and gas. So that’s ATP, nothing in particular there. On the…

Yes, I’ll just add, excuse me, we are very reliant to oil and gas in ATP and with the active hurricane season in the Gulf, needless to say, it hasn’t had – it’s exacerbated the situation even more so. So – but having said that, we have gotten some sales of late, not really meaningful, but sales for that – for those lines of products. But not like predictable and like we before with the retail and Florida Pneumatic and things like that. It comes –it’s pretty. It’s come…

Although the rig count – it seems the rig count has stopped dropping further.

Okay. That maybe – the rig count is so low. It’s like – it’s almost – I don’t think I ever remember since tracking this and rig count this low. It’s just – and we watch it every single day, honestly. That in the price of oil which has been in the until about a week ago and now it’s gone up again, $42 or something along those lines. So it’s just – it precipitously dropped and now it’s been regaining control again. But it’s all a big mess in that area. Go ahead, Joe.

Okay. Switching over to OEM, Hy-Tech’s largest customer, which is an OEM customer, took their last shipment from us in June and then told us that it would be a while before they ordered again. So there were nothing – I don’t – next to nothing in the way of sales to that customer, maybe other than maybe some spare parts or whatever in the third quarter. So that’s a pretty big hole in the revenue stream and obviously, as a percentage, an even bigger hole in the OEM category. And another major customer has dramatically reduced their orders as well in the OEM area. So that’s what’s going on there.

But having said that, we did get from one of those customers a very nice order in the last week, which is – it takes a while to build it, and it won’t probably have an impact on Q4 of any consequence. But at least it shows that there’s some life in that area going forward, we think.

Yes. I think that’s what I was going to ask is if this was indicative of you having lost share to a competitor, are they unhappy?

No, no, none of that.

No. In both of those cases, we’re pretty expecting. So any change in that revenue stream would require many quarters of transition, so – no.

Okay. Can you describe the end user market or the type of product for each of those two customers to get a feel for whether we could assess visibility on return of demand?

One item just oil and gas, yes, one of them was oil and gas related I was just referring to. And Joe go ahead, you can finish.

Yes. So oil and gas, it’s also power generation in general and some automotive. The other one is almost entirely aerospace.

Okay, alright. And now the PTG group, this is the power transmission group with the acquisition of the Blaz-Man, I mean gear products entities, PTG, combined with the legacy business, that sector is now the largest revenue-generating sector of all of Hy-Tech. Almost, I guess, 38% of the last quarter’s revenue. That one, can you talk a little bit more about, I think it was a mixed bag, meaning, I guess, your legacy gear customer or business that was weak and – which was slightly more than offset by the newly acquired business, which, I guess, is beginning to gain some traction. Is that the case or is it – because this is a – my measurement here is on the sequential again versus second quarter basis?

Yes. Well, you summed it up pretty well. Whatever we’re going to say is going to be exactly what you just said. Having said that, we’re not really – we really have not made as much headwind as we would like in the Blaz-Man business because we can’t go through the customers. We discussed that in the press release. We haven’t been able to see customers that won’t let us in and it’s really a hands-on kind of a sale. It’s not something we can do on a FaceTime or that kind of stuff or email. But that business has maintained itself from the levels that we bought it at. And in these times, to do that, is a very encouraging thing. Our other businesses, is down, as Joe referred to, for the agency side, but so you may add to that.

Yes, the legacy gear business was oil, gas, fracking and mining. And that was maybe half of that business. So that’s all dried up for right now. So it’s struggling along. And so almost – the growth that you see would be even more if that business has been even flat. But Richard’s right, we have maintained the sales level of the businesses we bought, which says a lot considering we bought it after the – before the pandemic started, and we’re still roughly matching the revenue that they had before the pandemic. But again, without being able to sit in front of a customer, looking apart a gearbox, whatever, it definitely hurts. I mean we are doing some visits, but I’m going to make this number up. We can only visit 20% of the places we’d like to visit. We make a – if there is five places in an area, we would like to go visit we can get in the door one of them, just to give you a sense of how difficult that is.

And when we do go see the customers in person, we’ve had relatively good success. So we expect that, that will continue as we get to see more customers.

Right. And is there any evolution from your customers and yourselves, primarily of the customers, that presumably, they have a need for the product or they have a need for your services, right? And in an extended COVID experience here of distancing that would not – that has prevented you from being in there in person and your product is essential eventually for these people to keep on keep an eye, okay? At some point, are some of these customers are ready evolving to a – not in person, in a virtual sales and explanation process just because out of necessity?

I would – I don’t think we have the information to be able to say that, but just so we can add…

What are your perspective – what are your current or your prospective customers like doing when it comes to this gear work that you do? They need it done, what do they do? Are they – is it that you – if you can’t go and visit in person?

Okay. Well, okay. The optimal thing is to sit in a room, look at the part, talk about the part, point to things. The next best thing you can do is send a sample and then our engineers got it on their desk. They get on the phone with the other engineer. They talk it through. The third best thing you can do is e-mail the drawing. If it’s something as simple as just, hey, can you make build to this spec? But as you can imagine, in any sale, especially when you’re talking about something highly technical, being in front of somebody is always better. So it’s not impossible. If the gearbox breaks down, they’ll either send us the drawings or send us the parts, we can work off that. It’s not impossible. But if you’re – that’s just there’s a breakdown. But there’s not a breakdown and you want to try to grow business and kick somebody out, you got to be in front of them. You got to be in their building.

Yes. I would think gaining share – gaining share is difficult, but servicing the customers, it seems like the customers who have this essential need we have to eventually adapt to the new normal, and things are being done virtually?

Well, remember, Andrew, we’re doing business. So that’s what we are doing, the customers that we have and the two that we have gotten, we are getting whatever orders they are having and we are satisfying them. We are doing that.

Are things becoming more efficient at doing them?

I think we need more volume to become more efficient, if you talk about in the factory itself, I think we need more volume.

Being more efficient doing things virtually just because you have to…

Yes. Well, I guess, by definition, yes, but really for the existing customers, not for new customers because it’s a hands – as I said, it’s a hands-on engineered product and they need to see people. But for the most part, the people that we have already, they have a level of experience and confidence in our abilities. So they talk to us so that we can do their stuff, but new customers are much harder to convince over a telephone.

Okay. I will back out.

Yes, yes, there is nobody else in the queue.

Okay. I have more questions.

Sure, go ahead.

Okay. So on Hy-Tech and just let me know if someone else shows up, but otherwise, I’ll continue with my remaining questions. On Hy-Tech, while there wasn’t because of this balance of reduced business in some sectors offset by gains in other sectors, it wasn’t an overall sequential revenue increase, there was a sizable increase in the gross profit of Hy-Tech from what was last quarter a negative gross margin and gross profit loss to return to gross profits, albeit a small margin, but it is obviously a major improvement in your margin. From last quarter to this quarter, is this a function on sales mix? What is this a function on? Or are there one-timers that were involved? I am assuming last quarter more than there would be one-timers this quarter.

It’s a very simple answer, and, Joe, can add on to it, but we had been focusing very heavily in the last year on increasing margins for customers and increasing our gross margin very heavily, very, very heavily. But full-time onshore and that is – and now we are trying to see the benefit of that. Is that the best way of saying it, Joe?

That is absolutely going on, but there are two other factors, Q2...

My query was from second – Q2 to Q3.

Yes.

Remember you had the inventory write-off in the second quarter, as you remember.

Yes.

So, what was that amount that would might help equate it out? Maybe it wasn’t well.

I would just like to say with regard to Q2 at PTG, we were still consolidating, seeing what we had, figuring out how to build what we had not built before in Punxsutawney hiring new people, working on new processes. It would – we are still in full transition. So that had all sorts of implications for absorption, training, locating inventory, not locating inventory, you thought you had. There’s just a long list of things that hit the gross margin at PTG. So I wouldn’t say it’s any one thing that drove it. And then the second item, which is even a bigger effect is that one large OEM customer that stopped – that took their last order in June, they have the lowest margin of all Hy-Tech by a certain mile. So without them in the mix, there is a dramatic improvement in average margin. So, all three of those things were going on. And then one more thing, which kind of relates, but as revenue goes down, our overhead absorption drops. So even though our standard margin of the product looks pretty good, we got a lot of empty machines. And people sitting around, and even though maybe we didn’t layoff a person that person might be running two or three machines at a time when we are busy. Now they are running one machine. So that overhead absorption is lost. So there’s a lot going on between Q2 to Q3. I think Q3 to Q4 is going to be a little more stable. We are still – we were out of the consolidation, get it ramping up phase at PTG where employees that are there. Now they are a couple of quarters, the processes are now solid. Again, we are not going to have that one OEM customer in Q4 they were missing Q3. So Q3 to Q4 will look a lot more comparable at Hy-Tech than Q2 to Q3. There was just a lot going on between those two quarters.

And in Q2, what was the inventory hit in Hy-Tech that impacted gross margin or was it…

Again, it was still consolidating the inventory that got moved...

No, no in quantity. What was the amount?

I am not sure what the amount was.

It was...

It was not disclosed.

Okay, alright. So that’s one reason.

And again, just keep in mind, you say it’s an inventory write-off, but sometimes there’s a little more. It ends up as an inventory adjustment, but it could – there are a lot of contributing factors to that. So I would hesitate to say it’s just – if it’s an inventory change, then the reason is you couldn’t find it. I mean there’s just a lot going on.

Okay. Can you opine a little bit about whatever visibility and information you have or handle and call it, the ramp-up timing of where you are in the pecking order of supplying products that are used by suppliers to Boeing and Boeing itself regarding what seems to be now a greater visibility on the timing. It seems as if the 737 MAX is going to get approval fairly globally, not just in the U.S. in the very near future to return to flight. Then there will be the train. American Airlines announced this last week, they believe they will have 737 MAXs, assuming the approval comes in the next week or two that they will have 737 MAXs some of them in the air by the end of the year. Obviously, other airlines and everyone else, based on simulator re-certifications, training pilots and all the other stuff, that’s going to be a Q1, Q2 thing where they are going to start doing that. They got to fly the planes and get everything going before they can then apparently start delivering what they have built up in their inventory, but they also would have their production line starting to do their thing. In this kind of time horizon, I have kind of described that is known right now. What – how do you kind of foresee the timing of when you start getting the phone calls and the ramp-up of making some incremental sales in your aerospace segment from this?

Joe, you can – I guess you could talk about what we do and I’ve been in discussion with few days.

So, a couple of things, Andrew. So there is the Boeing facility, which of course, we sell to, there is a major supplier of the fuselage, which we supply.

We still, right?

Yes. So Spirit, I don’t know if you saw their conference call, I did read the transcript. They have indicated they have got a lot of inventory. They are going to be lagging Boeing in growth ramp-up. Honestly, I don’t think Boeing even needs to build a jet next year to satisfy the demand, even if it’s ungrounded on January 1. So we don’t really know the answer. We have heard numbers. I think on the Spirit Conference Call, they talked about Boeing being at 31 jets a month by early 2022. But – and of course, you don’t go from 4 a month to 31 a month overnight. So I think it’s going to be a slow ramp-up. And there are four just a month now. It’s just – even if that doubles, I don’t think we’d see much. So – and again, I’m just speculating. I don’t think we’re going to see much in the way of business there until Q3, that’s just my guess. I could be wrong. But – and even if we do, it’s going to be pretty modest.

Now if that were the case, your business level right now is nil. It’s not as if your business level would drop from where it is. Is that right?

Yes.

We do business – yes, but we do business in our – and the other factors of Boeing, some modest business. Not enough to really draw attention, but yes.

You are at a trough, building up from the trough may until towards Q2 the trough.

That’s correct.

Yes. I would say give it – fluctuating 50,000, 100,000 either direction, we are about where we are. We’re about where we’re going to be in aerospace sales right now.

Okay. And then as they go – they start going from 4 a month to 8 a month or whatever, and again, 31 a month, what were they running at before this all hit?

52.

50, 52, I think the number was 50, I don’t know. I think it was – Rich is close, it’s about 50.

Okay. And that’s – I mean that’s with that particular business, but you are obviously looking on development and getting specked into a bunch of other programs.

Of course, yes.

Okay. And that – those things are impacted by COVID rather than any kind of grounding of a model?

Well, I mean if we are working on a project that is an installation tool for 737 MAX, it doesn’t matter how many projects I’m working on, we’re not going to have any revenue, right?

Yes, yes. No. This is 737, and that’s what it is. But you are working on stuff for Airbus or trying to them. You’re working on some other military projects that…

Yes, yes, absolutely.

And COVID is impacting Airbus for sure, not like they have a model that’s been grounded?

No. I think I read that Airbus their main rival claim to the 737, I can’t remember whether it is 320, 240, whatever, 330. I think they are building 30 a month or something like that.

And you are working to get specked into that?

I don’t exactly – the multiple applications for the tool, I mean, the 1 tool I have got, there’s multiple things we are working on. So – and I am probably not completely upbeat on exactly what model or even what part of the model these tools might be involved in, but various parts of the jet. And not necessarily selling to Airbus directly. It could be like there is a Spirit making the Fuselages for growing. There is various suppliers making various components to Airbus. So we are talking to all of them.

Have you been impacted at all in terms of your supply chains? And if you had been, are those impacts mitigating now since Asia has come out of the COVID circumstances a little bit better and not necessarily suffering a severe second wave?

We really are. Yes, go ahead, Joe.

We are out of that. There were definitely – in Q2, there was some impact. We were able to work through it. But at this point, we are home free on that, at least for now.

Having said that, Andrew, there are some products that we didn’t order or not due to the unexpected demand that we received on the retail side. So there’s been some slowdown of completing orders for that and getting shipments because now we had to turn on the force it and it doesn’t happen overnight, as you can imagine. So that’s the only thing

Do you lose those orders or will they go into a backlog? Did you lose the orders or they go into backlog?

No, they go into a backlog, most of them, most of them, most of them.

Well, yes, more – I guess, generally, that’s true. It’s just that there is enough inventory in the system at the store level or the distribution centers that, let us say, that I am going to make this up on a particular part. Let’s say, the distribution center is supposed to have 300 of an item and they are at 200, we can only give the 50. Well, when we have the other items. So order the other 50. So I guess it kind of – maybe – I guess it goes into there. I’m not sure where it ends up, but eventually, you are going to get that still. There’s enough flack in the system that is not gone. Mean when we are talking about stocking out, it’s really us filling the distribution to the centers. It’s not – generally, the stores are not stocked out and the distribution centers are not stocked out.

Well, presumably then it will keep your factories humming a little bit better to catch up and we fill those things, the levels, right?

Yes.

Okay, good. And in terms of the tariffs that were a focus of our discussions and of concern to all of us only a year ago, there seem to be a problem or a worry of the past. In light of a likely change of regime and potentially a different approach to trade relations, do you expect if any shifting – is there – do you have insight or any shifting on the tariff circumstances? And what that may or may not do for the company, including potentially shifting where your – I think you made some shift in your supply chain before because of the tariffs. Would you be shifting things around differently if the tariffs were wound down or wound back?

I don’t think there will be any impact with us either way, because if the tariffs are gone, we will be getting that money back to our customers. Is that the question you were asking?

Yes, that was one in terms of margin impact, if any. And the other one is, does it cause any shifting in your supply chain or your suppliers, which the tariffs had caused some shifting? Would you go back or would you – or you are happy with where you move to?

No, we are staying where we are. We are not going back. That’s – I mean, as now, that’s our plan. Things could change, but that’s what it is.

Got it. Alright. I think that’s it for this quarter other than.

We are – again, we are mid-November.

What is – when we started this quarter, are you starting the quarter at the same pace? You ended Q3, has the pace picked up a bit? Where are things so far for the quarter that gives you concern or optimism?

I don’t think – I think we don’t have any level of optimism or any level of concern. We don’t have a vision as to if things are going to sustain themselves at the current levels or not. I mean I told you that the orders for the first six weeks of the quarter have been the same as they were in the third quarter. But we don’t know if that’s going to continue. We don’t have that – nobody has that window. We don’t know what’s going to be. I don’t know what else we could probably say about that. I can’t tell you anything because I am not – I don’t have the crystal ball. Joe, do you want to add anything to that? I don’t know.

No. I mean, I don’t think there’s been a major change from where we were at the end of September. But I mean, that could – tomorrow, it could be different. So five weeks into the quarter.

Right. That’s my point. We don’t know what the – we know what we are saying so far, and we answered that question for you, Andrew, but we can’t tell you what we expect. It’s not normal we can predict more. Clearly, there is too many variables that we have no control over and the government and all that. If they cut down the economy and then close it down, obviously, that is a whole different thing. So can’t answer, we can’t help you more than that. Anything else, Andrew? Hello? Did we lose him? Okay. Operator, are there any other questions? Operator, any other questions?

We have no further questions in queue at this time.

Okay. So thank you all for being on the call today, and we continually hope that everybody stays healthy and well. And we look forward to speaking to you with our year end results at that time. Stay well and Happy Holidays to everybody. Thank you.

Thank you, ladies and gentlemen. This concludes today’s teleconference. You may now disconnect.