Good day, and welcome to the P&F Industries Inc. Q1 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Richard Goodman, the Company's General Counsel. Please go ahead.

Thank you, operator. Good morning, and welcome to P&F Industries first quarter 2021 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, but 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 related to 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 states and abroad, risks associated with sourcing from overseas, importation delays, customer concentration, impairment of long-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 Securities and Exchange Commission, 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 as well as in today’s press release. 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. Hope all as well. Thank you all for joining us this morning to discuss our first quarter 2021 results. I hope and all of you are doing well under these continuingly difficult circumstances in the world. Although the vaccine rollout, which will help control this deadly disease, is underway, we are still working diligently to get past the harsh effects of this global pandemic. Our thoughts and prayers are with all of those affected by COVID-19 and there families. I would like to direct you attention to the company's press release that was released earlier today, which includes the company's March 31, 2021, balance sheets and statements of operations, statements of cash flows and discussions related to the company's first quarter 2021 results of operations and how we compare to the same period last year. We believe this release should answer many of your questions. In order to make a better use of everyone's time here today, please be mindful of the purpose of this conference call, I would like to note the following two items, as I've always do. Firstly, as we have done for several conference calls, and has become our standard practice we will move directly to a question-and-answer session, and not restate what is already in this morning's release. And secondly, please be aware that we will only be answering questions directly relating to the company's results of operations and financial condition in Q1. We must insist that you adhere to this procedure, management will not be entertaining any questions that go beyond the scope of this call. And with that, we'd be happy to answer any pertinent questions anybody has this morning. Operator?

[Operator Instructions] Our first question from Andrew Shapiro with Lawndale Capital. Please go ahead.

Hi, thank you. I have several questions, asked a few and then jump back out into the queue. Trying to understand kind of where we stand here with ramping things back up as we come out of the pandemic. For all of the first quarter up to the end of March, was the company able to conduct any on site visits with current for prospective customers up to that point yet?

We have had some personal visits, but not anywhere near as many as we would like, especially in our gear company, which is more in the northeast, but, and with Boeing, they really just started doing it in a very limited way. So, really not much, I mean, we've got a little bit here and there, Andrew, but not a lot.

So I'm not sure if you heard my question clearly, because I'm trying to pace this and understand you've reported your first quarter results, up to the end of March had you been able to make those visits, the availability of the vaccine really starting to only get wide near the end of the quarter. And so people weren't even fully vaccinated until maybe after so these ramp up of the site visits you're discussing? Did they start taking place after the end of the first quarter? And like the last few months only, or?

I mean, it's a little healthier for me to say the exact timing of it. But I'm going to think Joe can correct me if I'm wrong. The majority of it has been in the second quarter, partially that’s not in the first quarter not much.

Okay. And I would say that, in Europe, continental Europe, we've been able to not travel and visit any customers at all.

That I understood, but things are opening up here. And I'm just wondering if you were getting to start to see the benefits of that. And if the first quarters rebound reflected that, but it sounds like the first quarters rebound was pretty much independent of the effects of any new sales activity. In what month exactly did the company submit its application for forgiveness of its $3 million, PPP loan? And what is the status of that forgiveness?

I will let Joe give you more details, but we submitted it, as we said at our last conference call and nothing's changed. We submitted it timely, in a timely manner and properly, and it's been in there for I'm going to guess, 90 days or more. And we've tried to reach out to them. And it's like talking to a wall for the most part. But go ahead, Joe, you can give more color.

We submitted our application at the end of January. And then there was as you probably read a follow on questionnaire that was required to be completed, which was done in early February. In both instances we're depending on when, we're not sure if the clock started at the first instance, or when we completed the questionnaire. But we're past the 90 day point, which at one point we were told, was the deadline for the SBA to verse the loans, but they have basically have not done that and have not indicated when they will.

Right now in light of the size of this and the impact it would have to the income statement, should you receive formal notification of the forgiveness of the loan? Would you be issuing a press release in 8-K announcing that we have to wait all the way until August for the second quarter’s earnings results to see this?

I would refer to Rich on that. But certainly it's a significant event. We'll do whatever is required, but.

Of course, we will we will definitely consider that. And I would think it would be something that we would do unless lawyers tell us we can't do it. But I can't tell you but we'll definitely consider that.

Usually the lawyers don't prohibit such kind of disclosure; I have that material kept private inside. Okay. I have other questions on the operations, please come back to me but I'll back out into the queue.

[Operator Instructions] And we will go again to Andrew Shapiro, please go ahead.

Great, thanks. And in light of picking up travel again, by the way, and workforce feeling comfortable about doing this, I'm more concerned about your marketing and Salesforce, but I'm sure your engineers do it too. Do you have an estimate of the percentage of the workforce presently vaccinated with one shot or fully vaccinated? And are you considering any financial incentives or bonus for employees to get them vaccinated?

Joe, you can answer that.

We don't have perfect information in that regard. But I would say that, depending on location, you know, we're probably at half or more. But we are looking at trying to increase that and incentivize that as much as possible. So we are considering our options in terms of trying to get our percentages as high as possible. But we don't have a formal policy in that regard yet, because it's really only been last few weeks, that everyone has had full opportunity.

And when you reconfigured the floors and your work shifts and all of that in order to minimize risks from the spread and you have stated in the past that you were on the manufacturing side, you've been able to maintain things. It seems like there was still certain special efforts and things that had to be done when the advent of the spread being reduced or the workforce being vaccinated and all. Were there productivity hindrances that you encountered that you would be reverting back to certain older ways that were more efficient or more productive? Or is there not a meaningful difference one way or the other?

Joe?

Yeah. You know, if you were to actually you probably toward one of our facilities, Andrew, there is enough distance between machines, that there isn't any meaningful impact on the floor. As a result of the protocols, we clean a little bit more and there are certain other things we do, but in terms of production, there really isn't much effect. Now, the office space is a little tighter. So we're still depending on location, alternating days or people are working not every day in the office. But I would say that it had no impact on our ability to accept orders and deliver orders and what we need to do every day. So I don't anticipate that the vaccine is going to have, the vaccines availability and subsequent people getting that done going to have much effect on our ability to function.

With respect to Florida pneumatic while the company's spray gun tools are certainly enjoying year-on-year increases, to what extent if any, have you seen year-on-year increases in other lines of retail or aftermarket automotive tooling?

That's the one that's really dramatically changed. The other stuff is I think within the normal up and down. But those spray guns continue to be very, very hot in the market, there's a demand.

Yeah, with regard to the other tools, we are seeing an increase in the automotive tools. And I wouldn't say it's overall and we're certainly seeing an increase in the Amazon channel. But again, as you may or may not recall, there was a time there were the other main channel, which was the distribution such that schools were being driven around on trucks and trucks revisiting garages, there was a time when that was shut down completely. That is obviously starting to reverse. So we're not 100% sure, if the Amazon growth, which is fueling an overall growth in AIRCAT will recede and some of those customers will start to return to buying from the tropics [ph]. But overall growth -- there's growth in AIRCAT year-on-year.

Okay? And can you provide further color and the types of non automotive applications for which you referenced in the press release, our company is developing cordless models of its tools in the perspective, time range in which these products might be introduced by P&F.

So there is a one or several aerospace applications. And there are several, what I'll call industrial, heavy duty industrial management applications, which run across a number of industries could be construction, could be infrastructure repair, could be heavy duty automotive, heavy automotive, and truck work, oil and gas, things like that. So, we're going down several paths. So we actually have an automotive, a cordless tool that we're working on in high tech and a cordless tool that we're working on Pneumatic [ph]. And in production, we don't have a hard date. We're thinking Q3; I was going to say we're hopeful that it's this year in time to have a meaningful impact. But, you know, these tools are still under development. But we're moving along as quickly as we can.

And in the development of these tools, is there some IP associated with it? Might the P&F develop and have some proprietary asset it's developing here?

I don't know the answer to that. I would say, for the most part we're using off the shelf, or someone else's battery tech. The development of battery technology is extremely expensive. So, we decided not to reinvent the wheel.

Okay. And sticking in Florida Pneumatic, but jumping over on the aerospace side. In the progression of quarterly revenue generation and aerospace, is there traditionally any seasonality in this sub-segment of Florida Pneumatic in the aerospace there?

Joe?

I would say generally, no, although historically, there definitely is a slowdown in aerospace in the back half of December. In fact, I think it is sort of industry-typical that almost every aerospace manufacturer is closed the last week of December and we also typically see slowdowns in orders in general even before that, but not sure I would call that seasonality. But other than that, I don't think so.

Okay. And moreover then with respect to aerospace, what visibility, if any, do you have on the anniversary of revenue declines for when we might see to simply a stabilization of aerospace revenue to prior year levels? Because we saw obviously, year-over-year decline in this full pandemic, Q1 March 2021 versus we'll call it a partial pandemic Q1 March 2020. Is there any visibility on the anniversary [ph] of this sub-segment's revenue decline that you're already seeing? Or you expect to see in the next few months or quarters?

Every week, Andrew, we get different information from our aerospace people, specifically Boeing. They don't know what they're talking about. I wouldn't rely on anything they're telling us or anything they're doing. But right now, we have seen really nothing of any consequence and changes in that regard. Joe, you want to add anything to that?

Yes, I agree. I think that in Q2 of 2020, it was pretty much the bottom. So, this quarter we're now in, is is the anniversary of the bottom.

Yes, but they don't give us insight. And most of our big customers, they don't give us insight as to what's going on. They give us dates that they think things are going to be and then they give us a different date, totally unrelated to the first date a month later. So, we just go ahead with our business. We don't really put any value into what they tell us because they don't know either.

Okay, I'm just wondering if you understood the nature of the question. I think Joe did. I get it. Okay. Regarding Hy-Tech and in particular PTG and the gear products acquisition. So, at Hy-Tech, can you explain the timing of the gear products acquisitions into the integration of the PTG business and kind of provide some explanation or color on the year-over-year revenue decline reported in PTG this quarter? And so, better understand why that is the case and also the kind of the sight lines on your book of business going forward?

Yes. Well, I'll let Joe -- our bookings are good. Very, very good actually. We have a good backlog. Joe, why don't you discuss the comparison?

The PTG business, this quarter a year ago, we could travel freely and we were really going hard at all the new customers that we had gained as a result of the Q4 acquisitions. Q1 of 2021, we couldn't travel at all. So, that had a significant impact on our ability to generate orders, although, as we said earlier, we're starting to make some progress in that regard. I hope that answers your question.

Yes. Which we answered before. Yes.

Okay, I have more. Let me back out and come back.

Andrew, there's nobody else.

No one else? All right, I'll continue then.

Why don't you continue till the end and anybody else will come on afterwards? Thanks.

Well, I'd hate to allow them to sleep.

It's okay. Nobody else on the call. There's nobody else on the call. Go ahead.

All right. Approximately how much as the company's available tax NOL carry forwards to offset future income?

Joe?

If memory serves, we are anticipating somewhere between a $0.5 million and $0.75 million [ph] check back from the government for some time later this year. So, I will call that the NOL, though my tax people are gonna yell at me for calling it an NOL. But that is the exact...

That's a refund of prior taxes paid where you can do a look back, and we've generated some substantial losses over the course of the last year or so. And are you saying that all of those losses have been kind of accounted for and there is no tax shield available for when this company returns to profitability?

That is what I'm telling you. I believe we will be darn close to not having any shields that up. That's my recollection. But somebody will check that while we're on the call.

Good.

All right, I'll tell you what...

But I think that we were able to go back all the way -- the law changed a little bit. I think we were able to go back to the point where we had that sizable gain in 2019 due to the sale of the building. But I don't think there's going to be any shields going forward. So, to the extent, we have losses in 2021, those will have to be carry forwards. But someone is going to check that and confirm that.

Right. And also the PPP loan comes in. That forgiveness is not taxable, according to the IRS guidance, which is nice.

That is correct.

That's correct.

Okay, so that will be good, too. All right. And you closed on and you got this acquisition of the gear businesses, which was all exciting at the time and then as you're moving everything over, the pandemic hit and to evaluate and to compare and think about the strategic benefits and the synergies you had expected or thought of from the acquisition, that kind of got thrown out the window. With visibility now coming out of this -- pandemics, mass vaccinations, et cetera, you're beginning to travel, your order books building up. Can you remind us and elaborate again on the strategic benefits of those gear businesses and the synergies that I guess we should maybe expect to see now in the coming year from what was acquired and maybe put some numbers around it. I can't recall again what was paid to buy both of those businesses and the scope of its revenue stream that was acquired.

Alright, Joe. You can…

Yes. You know, Andrew, the benefit was essentially that we had a workforce that was capable of taking on the acquired activity with what I'll call an efficient increase in manpower. So in other words, I'm going to make these numbers up where the acquired businesses may have had 15 employees required to generate $3 million in revenue. Inside of our shop, we probably only needed half that and obviously, less total space between the space we already had and the space that they were using. So, I can't give you an exact number, but I can say that as we grow revenue from where we are to the to be more in-line with what our traditional business had and frankly what the businesses we acquired had, there will be for some period of time, a minimal if no change in personnel, as we get more efficient using the machinery that we do have and at some point, we're going to need more people. But at some modest level of growth, we actually won't need any more employees. I can't tell you if that's another $0.5 million in revenue or $1 million in revenue, but you'll start to see the margin go up because we're going to have a lot of overhead absorption as we ramp up. And of course we'll hit a step function change and then we'll have to bring in some more people with growth continued. But we've got a little bit more runway here to grow revenue without really increasing the overhead.

Yes. And to clarify further on the question, you guys made the acquisition and we're all excited. We all seem to have been excited about it and then all of a sudden, we all hit the wall with all of this. What have you seen, if anything, that gives you cause to return to having excitement and a takeaway in a viewer an elevator and wanted to spend 30 seconds to tell us why this wasn't good acquisition and that this is going to be a good return on investment.

I would say two reasons. One, again, there's nothing magical about increasing revenue and getting a greater return because as I just said, outside of material, we have some more runway in personnel and equipment in space. None of those costs are going to change. Second, what's probably even more encouraging is that the customers that we took on have more years available to be produced for them that are different than the old customers we're manufacturing, but within our current capabilities and then related to that, our hit rate on getting in front of a customer that is not a current customer and getting business is very high. It's extremely high. So, we're confident that as we can get in front of a customer, we will get business. So, those three things give me...

And just to add on, just to go further on the score that we are having a very -- when we do get a potential customer that will see us, we have as Joe said, a very good hit rate. So, our customer base is getting broader and it's a very good horizontal integration for Hy-Tech itself and it helped a lot in terms of absorption and Punxsutawney [ph].

You made reference, and I appreciate it in the press release. Specifically that at this time the dividend would not get reinstated. But you hadn't been mentioning any of that before. But that sounds like it is now on the agenda for each Board meeting. Is it time to do it? Is that a correct assessment that it's an agenda item now and there will be a time in the foreseeable future that dividend will get reinstated?

Andrew, I don't know what you think is foreseeable future and what we think of the foreseeable future. But every board meeting even during the beginning of the pandemic, we discussed it; every single board meeting and every time we've had board calls, we've discussed it. So, it's nearly no different than before. We've always been discussing it and we will continue to discuss it and the company will make the necessary disclosures if and when we do have a dividend. And it's all I can say to you, is we want to have the dividend but the numbers have to be there for us to do that.

Right.

And you'd analyze it continually and as we do. I don't know if that has answered your question the way you want it, or you want to ask another part [ph]?

Well, it's partially. If you wanted to tell me what you felt was the foreseeable future, that would then answer the question entirely.

I don't know. I can't do that. And we'll keep you posted. When there's a dividend, you'll know like everybody else will know.

Yes. On previous calls pre-pandemic, you were very actively looking at tool businesses, aerospace, automotive, industrial, et cetera. Can you update us where in your capital allocation priorities here, where we are now? Not post-pandemic, but pre-post-pandemic? What's the status and focus of your acquisition process is? Are you looking? Are you seeing valuations that have come down and opportunities that fit within the company's model of usually looking for owners that don't have a succession plan, who are looking to monetize their life's work which probably is flying before their eyes a lot quicker now that they've gone through a pandemic?

All right. Go ahead, Joe.

We're actively looking.

We're always looking.

It really changed. I think, well, there are people that have that sense of -- well we just went through this pandemic and maybe I should be thinking about selling. I think you've got the countervailing force of people saying, 'Well, we're not that far from the bottom and I'm not going to sell right now. I might want to wait till things improve a little bit'. But we're out there, we're seeing things to look at and we're looking at them.

A lot of people are saying before pre-pandemic, we were at one level and so we expect to be paid at that level still, because we will be back there again. And we're not doing that. But, but we are looking actively always for acquisitions.

Okay. Have you gotten any indication from Airbus at all as to when they will start to take visits and the tools that you had in mind and were excited to present to them could in fact be presented?

Yes. Andrew, we got your email last week. I'll just remind you, Airbus is not a customer of ours, essentially now. We do a little bit here and there, but not not to any great value. So, I'm just reminding you of that.

Yes. Well, this is why get them because you had tools you want to put in front of them.

We do and we will, but there's absolutely no open door at Airbus because they're in Europe, essentially. That's what starts there. And we are paying attention to it every day. The soon as they open their doors, we hope to go there. But in a big company like that, just like a big company like Boeing. It's not immediate gratification. So, we have to manage our expectations with that, but it's definitely on our radar, but they're not up to that point, Andrew.

Okay. And pre-COVID, you spoke...

We're months away from being able to get into Boeing.

Right.

Okay, well, that's better than quarters. Pre-COVID you spoke of concrete initiatives, beginning to marry up Florida Pneumatics, Jiffy's and Hy-Tech's resources to go after the aerospace market in a bigger way. But with the long lead times in aerospace, it could be several quarters before you saw any results. During the several quarters of COVID, and reduced aerospace activity, what have you guys done to better-position these initiatives to marry up those resources once the market does open up again, for you?

We are positioned and we've been positioned and we continue to be positioned in a good way when that when the market opens up. Joe, I don't know if you want to add anything more to that.

Well, I mean we're -- we're combining resources on product development, we are coordinating the efforts of our European salesperson, so that in their bag of tricks, they have the full suite of all P&F's tools that could serve as aerospace. So, that's what we've done. So, when we can have a visit, we will arrive with a full P&F compliment of tools that we're ready to complete development on for Airbus and Boeing.

As I said, we have been and we continue to be very well-positioned for both. When the time comes, we'll be there.

Your press release made no mention of any current shares outstanding number or even the one used for the EPS calculations. So, all we kind of have is the prior 10-K to go off of. Can you provide us some more current outstanding share, fully diluted share count?

Joe?

I don't have that data.

We can get that we can get that to you, Andrew.

Okay. That and also the NOL catch up if you can.

Andrew, I would just say there, is it -- just before we go on, there's no material difference between the last published data and and as you know, when the Q is filed, you'll have that information in 48 hours.

Yes. Is it possible by the way for you guys to ever file the 10-Q in advance of this call?

We've had those conversations with the lawyers, we've been informed that it is preferred to do it in the order we do it. But we will express that higher to the Board and the attorney.

Yes. Okay. Just because a lot of questions come up and you can then answer them. You mentioned in the release an obsolete slow moving inventory charge at Hy-Tech during the first quarter of 2021. And that flows through and impacts cogs and gross margin. And this was a higher charge than prior years Q1 2020. What was this quarter's amount and how much of an increase was it over the prior year? And is there an amount in this bucket that you feel is non-recurring type of charge?

I don't have the the number. I don't remember it being particularly material. I don't have in front of me. But one thing that you have to remember, the way that our inventory reserve model kind of works is it's just not a subjective -- well, what we feel like doing. It starts with an activity level. So, as you can imagine, as activity starts to dry up, our initial reserve needs to grow because again, it's driven by activity. Activities down, other things being equal, the reserve needs to go up. That's kind of where we start. So, as we enter a pandemic or a recession, it is mathematically unavoidable that we increase the reserves, and then as we come out of a recession those same tools as the activity levels increased in relation to the amount of inventory there, the reserves reverse. So, to answer your question, yes, I would imagine some of it is temporary. But I'm sure it's not all temporary.

So, it does has a momentum impact on our gross profits. As we come out, the charges reduced, only providing even further growth in the gross profit and the same as we're experiencing now is it's a headwind than the gross profit because things are slow.

That's correct.

Okay.

But again, I don't want you to think it's all a formula. That's where we start and then we then we drill down further and look at individual families of tools in special circumstances and whatnot. With by some judgment, but we do start with a calculation.

Yes. Are there any particular games or items in your OEM engineered solutions in particular, for any industries or products worthy of a call out? Also, you had mentioned on prior calls a new line of ATP Magnum Force industrial air impact tools. And I was just wondering if there was any meaningful success of acceptance of such a product that has come to pass? Or is the pandemic and economic slowdown clouded at all of that?

Joe?

We've been very happy with the Magnum Force reception and I would say, especially in the last 90 days, it seems to have really taken off with a few customers that have a fairly wide end user base. So, yes, I would say we're meeting some success with that new offering.

And is there any other things from the OEM engineered solutions area? In particular areas or industries or products whether you have any call out or elaboration?

No. I would say...

Not really because we haven't be able to get to see people again.

Yes, that's been a little bit of a holding pattern as a result. The same issue there we have with PTG.

Okay. And via the Amazon route, which you've said AIRCAT were doing really well. Do you have any visibility? Or do you have any idea how much, if any, of the Amazon product is going overseas, where you would otherwise have been having difficulties with the distribution?

Not the minors [ph]. I don't think we have any visibility with that. Joe, do we have any visibility?

No, not to my knowledge either. If I were to guess, I would say none of it is going overseas.

Okay. All right. Well, it just poses, I guess, a greater opportunity for when Europe comes out of this as well.

Okay.

I think that's it. I will back out. Thank you.

Andrew, just to answer one of your questions, we have taken full advantage of the federal NOL carry-backs. There is no opportunity for further carry-backs. And as you may or may not recall, we have a fairly large state NOL. Most of that is in the state of Virginia. So, unless we open up a subsidiary there and start generating profits, those will not be able to help us.

Yes, you can't you can't utilize those. The federal side, the losses you've been generating of late, those are being compensated for already.

Yes, correct.

Okay. Well, for cash flow, that's better. Our future profits will be fully-taxed...

Thank you, Andrew. Thanks for your time.

...except for that PPP loan.

Right. Thank you for your time, Andrew.

Thank you. [Operator Instructions] And with no further questions in queue, I will turn the conference back to the company for any final remarks.

Thank you, all, for being on the call with us today. We look forward to a good year. We're very optimistic that we're going to have a good year because those things continue on the road that they are with the world and the country. Stay well, everybody, and we'll speak soon. Thank you, Operator.

Thank you. This concludes today's conference. Thank you for your participation. You may now disconnect.