P&F Industries Inc (PFIN) 2020 Q1 法說會逐字稿

Good day. And welcome to the P&F Industries, Inc. Quarter 1 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Mr. Richard Goodman, P&F Industries General Counsel. Please go ahead, sir.

Thank you, operator. Good morning. Welcome to P&F Industries First Quarter 2020 Earnings Conference Call. With us today from management are Richard Horowitz, Chairman, President and CEO; and Joseph Molino, Chief Operating Officer and CFO.

Before we get started, I'd like to remind you that any forward-looking statements discussed on today's call by our management, including those related to the company's future performance and outlook, and based upon the company's historical performance and current plans, estimates and expectations, which is subject to various risks and uncertainties, including, but not limited to, risks related to the global outlook 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, risks associated with Brexit, customer concentration, adverse changes in currency exchange rates, impairment of long-lived assets and goodwill, unforeseen inventory adjustments with change 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; 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, our current reports on Form 8-K 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. Thank you so much, and good morning, everybody. Thank you all for joining us this morning. We're hoping that everyone is safe in this unprecedented incredible time in our country and in the world. And we just pray for everyone's safety and well-being.

I will begin today's call with a brief summary of our first quarter 2020 results and how they compare -- this data compares to the same period a year ago. I direct you to our release from earlier today for more information. This morning's release presented P&F's balance sheet, statement of operations, per share data, along with most of what will be our management's discussion and analysis. I wish to emphasize, of course, as I always do, that the purpose of today's call's intended to discuss a review only the company's results for the 3-month period ended March 31, 2020. And also at this point, how the current pandemic is affecting our businesses. As such, I ask that you please do your best to confine your questions to these topics.

After that, after my brief ramble, I will ask Joe Molino to briefly review key cash flow of information and provide an update on any key points affecting the company, which, of course, we'll move to the Q&A after that.

The company's first quarter 2020 consolidated revenue was $13,350,000 compared to $14,322,000 for the same period a year ago. As discussed in the company's press release published earlier today, the most significant factors causing a net decline in our consolidated first quarter revenue was the novel coronavirus or COVID-19. The negative effects of which we felt on nearly all of our lines of business and, to a lesser degree, a significant decline and of lower price of crude oil, which compounded with the COVID-19 effect negatively impacted Hy-Tech's ATP revenue.

The company's consolidated first quarter 2020 gross margin was 33.6% compared to 36.9% the same period a year ago. Florida Pneumatic's gross margin was 37.6% compared to 38.4% in the first quarter of 2019. This slight decline was due primarily to product mix and COVID-19-related business inefficiencies.

Hy-Tech's gross margin this quarter was 21.3% compared to 32.8% in the first quarter of 2019. The decline was due to, among other things, a less favorable mix of products sold during this first quarter of the year compared to the same period a year ago, weaker manufacturing overhead absorption and lower gross margins at our new Power Transmission Group, or what we call PTG, in turn due to start-up efficiencies, which have subsequently been addressed.

Our first quarter 2020 selling, general and administrative expenses were $5,690,000 compared to $5,263,000. By far, the most significant item driving the increase was the $420,000 of course, incurred as a result of our decision to accelerate the relocation and setup of our gear businesses acquired in late 2019 into our Punxsutawney, Pennsylvania new facility. We determined that it would be more efficient to complete this process in a shorter period of time than originally planned. And as a result of this, expenses this quarter were greater than expected. However, this decision will result in greater efficiencies earlier than planned for our PTG, Power Transmission Group.

Our interest expense during the first quarter of 2020 was $55,000 compared to $63,000 in the same period in 2019. This decline was due to lower amortization of debt issue costs, partially offset by increased short-term borrowings.

This quarter, we recorded a tax benefit of $505,000 compared to $25,000 for the same period last year. Taking all the above into consideration, on an after-tax basis, we are, for the first quarter of 2020, reporting a net loss of $758,000 compared to a net aftertax loss in the first quarter of last year of $26,000. We are reporting first quarter 2020 basic and diluted loss per common share of $0.24 per share compared to $0.01 basic and diluted loss per common share in the same period a year ago.

Again, as a reminder, I refer you to this morning's press release for much more additional information. At this time, Joe, please take the call and discuss cash flows.

Thank you, Richard. Capital expenditures during the first quarter of 2020 were $658,000 compared to $485,000 in the first quarter of 2019. Significant noncash items affecting first quarter of 2020 cash flows were depreciation and amortization of $433,000, amortization of other intangible assets of $195,000, amortization of operating lease assets of $234,000, amortization of consideration payable to a customer of $67,000 and stock-based and restricted stock-based compensation of $29,000.

Additionally, significant components impacted cash use in operating activities during the first quarter of 2020 were: a decrease in inventories of $524,000; an increase of $528,000 in prepaid and other current assets; a decrease in accounts receivable of $720,000; a decrease of $894,000 in accrued compensation and benefits; accounts payable accrued over liabilities in the aggregate decreased $80,000; and finally, operating lease liabilities decreased by $230,000.

With that, I'd like to turn the call back over to Richard. Richard?

Thank you, Joe. And before we get to the Q&A. At this time, I'd just like to briefly discuss P&F and how we're addressing the COVID-19 pandemic. As we all know, during 2019, we began to source many of the tools and parts that were being manufactured in China to other quality manufacturing facilities elsewhere. And despite this beneficial action, the coronavirus had an impact on our supply chain, although not really material at this point in time. We continue to practice the guidelines issued by the CDC and other governmental bodies, such as social distancing, enhanced cleaning and disinfection protocols, allowing many workers to telecommute and splitting work shifts.

Currently, except for our corporate offices in New York, which is closed by our governor's orders, all of our facilities remain open. No one knows how this economy, or particularly, our business, would fare post this pandemic or how long it will be felt. But rest assured, our management teams and Board of Directors are working diligently to ensure that this does pass and we will be well positioned to take advantage of the recovering global economy.

Additionally, in April, we applied for and received approximately [$2.9] million in the form of a payroll protection planned loan. This will allow us to maintain, at least on an 8-week period as outlined in the CARES Act, our full workforce. We are very grateful for these funds that the government has provided us.

And lastly, the Board of Directors decided not to issue a quarterly dividend at this time. They will evaluate -- we will evaluate the relevant facts and circumstances when designing future current dividend payments.

That's the end of our report today. Now operator, we'll be happy to answer any questions anybody may have.

(Operator Instructions) We will take our first question from Andrew Shapiro with Lawndale Capital Management.

Several questions. I'll ask a few and get back out into the question queue, and hopefully, there's others there.

First off, if I'm correct, I just want to understand. Other than the headquarters where you are doing telecommuting, working from home, much of the rest of the business is manufacturing and I just want to clarify, in each of the states you manufacture -- first off, what are the states now? Is it just Pennsylvania, Florida and Nevada?

Yes. We manufacture in Pennsylvania, 2 factories in Pennsylvania; Florida and Nevada. And all of our factories are open. All of our -- those 3 offices are open and a lot of those people are coming in sporadically as needed, but we are basically working from home at this point.

Right. And were all of these manufacturing operations deemed essential being the various states during the time...

Yes. Yes. I should've mentioned that. Yes.

Should they lock down again, the odds are they get to remain open?

Yes.

During this period of operating, is the manner in which things are manufactured in our facilities such that employees are able to be fairly spaced out and protected? And have -- has the company encountered any occurrence within its staff of any outbreaks of COVID?

We've had good success with that thus far. Joe, am I right about that?

We actually, to this date, don't believe anybody has contracted COVID inside of any of our facilities.

Okay. Great. And then getting to some of the, we'll call it nonrecurring, albeit, maybe cash expenses. With the acceleration of the SG&A costs of consolidating your Gear acquisitions into Q1, what remains left for Q2? And will that be the remainder of the costs?

I'll let Joe give you more specifics, Andrew, but predominantly the majority -- the vast majority of those expenses are in Q1. There'd be remaining little stuff here and there, but for the vast majority, we are moved in and operating at really full, full capacity. But Joe, you can add more color, if you'd like.

There's not much more to add. This is right. There's just an immaterial amount of expense after Q1. It's a non-noticeable figure.

Okay. And then you referred to, in your press release, start-up issues in the new facility. What were those issues? And when were they or are to be resolved?

Go ahead, Joe.

We did a running change, meaning we didn't stop production at all. So we had machines being rigged in next to machines that were running. We had employees that were on machines having to come off those machines, while other machines are being installed, electric was being installed. And then it's a new layout. We're also incorporating 3 sets of build plans into 1 building. As you can imagine, a fair amount of confusion maybe isn't the right word. But a lot of activity in a very short amount of time, a lot of things going on. So not as productive as you would be if everything is where it should be and the plan had been placed in -- the production plan had been placed for a month or 2. So nothing unusual. It's just we did an incredible amount of time, I would say, even it was Q1, I would say, is probably scrunched into more like 45 days, to be honest, where we got all this activity done. So we thought it was a great effort, to be honest.

So were they resolved then by the end of Q1? Or how far into Q2? Or are they still to be resolved?

All -- it's in progress. All machines of any consequence are up and running and producing parts by the end of March. Having said that, as with any new layout in consolidation, it will get a little better with each quarter. And I'm just guessing, but I would say it will probably take us another quarter or 2 to be at where I consider the full, full efficiency. But we're very efficient after Q1. A huge improvement from 1 to 2.

All right, now in Q4, your run rate included operating in basically separate locations. Q1, you are doing the accelerated consolidation. You've had these start-up issues you referred to. And you will get better and better over time, et cetera. Can you quantify what you feel the expected savings, if any? It seems like there would be some. Your expected savings on a run rate would be from Q4's run rate, which we assume was normalized pre-COVID and everything else, but deconsolidated. So at the end of the day, if we're comparing to, I guess, Q4, I don't think there was a full Q3 because you acquired in October. What should we hope to achieve or see on the, I guess, we'll call it the cost savings side of this acquisition? I know there's other revenue benefits. But on the cost savings side, what should we see compared to Q4?

I'll let Joe discuss that, but just to remind you, Andrew, that I believe we had 6 factories, 6 places in Chicago in the 2 businesses when we started. And now we have 0 places there. And there's 1 small office for 2 people, with a de minimis amount of rent just, a place to go for salesmen, all that kind of -- salesperson and another guy, an engineering practice, so original owners of the company. So just by definition, we're in 1 place now, but we moved to new facility. It's a much bigger facility, but Joe, you can give him the specifics.

So Andrew, so unclear, when you say savings, compared to what? Q1...

No, no. Q1, you were in the middle of the running consolidation, but we bought in October and Q4, presumably, was a normalized double SG&A or whatever the run rate was preconsolidation. And now that it's all done or it's still evolving in terms of startup issues, but be improving, but you said most of it's all been done by the end of March. What, in this sense, is the expected savings that we would -- we could see from the SG&A that would be expected from this whole consolidation effort? This is on the cost side.

Well as I believe we stated -- yes, on the SG&A side, in Q1, we certainly had hundreds of thousands of dollars of transition costs that were direct. In addition to that, our margin is probably half of what it should have been in the Gear business. So I can't give you exact figures. I can't tell you exactly what the savings are going to be, although I would say, beginning with Q2, the margin on the Gear business should look a lot like the rest of the company, if not a little better on average. So I don't know if that answers your question.

I would also mention there that we used manufacturing labor, obviously, to move little things that would -- so they were not making products during that time, obviously. And in Q4 -- and Q4 had much less SG&A because of that.

Okay. Well I guess I'm trying to get, at the end of the day, you guys justified the acquisition. You present things to the Board, the Board approves the acquisition, et cetera. Trying to just get a feel for what is the scope of revenue and gross profit impact. You think the relocations and setup caused to PTG segment within Hy-Tech to get an understanding about, basically, Q2 normalized run rate and Q3 normalized run rate for that segment of Hy-Tech.

I think there are a lot of moving parts whenever you move a new company in. I don't know if you've ever done that, but if you have, you'd know and you'd realize that there's a lot of moving parts when we come into place. And there certainly will be a lot and there certainly will be a good statement. I don't know if we can really pinpoint yet exactly what it is until we get a couple of months under our belt and see what it all is. But I mean certainly, as Joe is saying, the margins are going to be back up to what you would expect or perhaps even better. And everything thus far is exactly as we had projected and forecast when we -- before we bought the company when we bought the company.

Joe, do you want to add anything to that?

So when you say margins...

Go ahead.

So when you say margins -- so PTG, I don't think you provide the margins of the subsegments, is a PTG margin available?

No.

So is it the margins of all the Hy-Tech overall, you're saying that'll run up that or...

As I said to you, they went down this quarter because of the direct labor being used to move in for...

I totally understand -- yes. No, I understand that. So I'm trying to project here. I'm trying to be prospective to understand earnings power that this company can generate.

Well I don't believe that -- Joe? Go ahead, Joe.

One of the issues is whatever we would have expected about 2 or 3 months ago is now -- not -- I'm not sure that's the proper expectation, given this environment. While I will say that I believe our power transmission group is probably among the best positioned of all of our product lines because, in many cases, we're dealing with supplying the central businesses. In addition to that, much of the work is breakdown work, meaning somebody's got a gear, it breaks down, they need it fixed right away. So there's a lot of a lot of regular business that's unaffected by the virus, so it's a little hard to say.

And I'll go back to what we said when we made the acquisition that we paid a little more than a full multiple on these businesses as they stood. But once inside of our operation and combined with the old quality Gear business, we are paying a fraction -- we ultimately pay a fraction of that. And that is with all of the transition costs, which I would imagine are easily $0.5 million of hard costs and soft costs, like I said, inefficiencies that went on for 6 or 7 months, hundreds of thousands of dollars. So I can't give you a better answer because I think it's really apples and oranges, but I think I'll agree with Richard, that we're -- everything that's happened has been pretty much the expectation at this point.

Right. Okay. I mean, the cost -- the cost-cutting or the cost consolidation savings are kind of what they are. I realize COVID has changed the near-term revenue picture so...

It's also hard for us to really project, but you have said it. It's very hard for us to answer right now. But it's all good, I can tell you that.

I have more questions. Please come back to me. I will get back to the queue and let others have a chance.

Sure, of course. Okay, thank you.

(Operator Instructions) Our next question is Henry Dubro, a private investor.

I noticed that there was a 8-K recently filed that said you needed more time to file the first quarter Q. And one of the reasons was to evaluate assets for any impairment. In releasing the first quarter results this morning, is that evaluation complete? And is there any impairment as of that date, March 31?

I'll let Joe answer this question, Henry. But the delay -- the answer, I believe, is no. And the delay was for COVID. There are certain requirements that every public company had to go through now to issue their quarterly numbers. But Joe, you expand.

Yes. The analysis that was completed regarding the assets write down prior to release of these earnings. These numbers reflect that, and there is no impairment for the first quarter.

And I'm just reading something from the 8-K that was dated for all, May 15. Okay. Let's move on. What was the total payroll incurred in the first quarter?

For the entire company?

Correct.

Joe, do you have that...

No. I do not know the answer to that off the top of my head, but we can probably have somebody take a crack of that while we're on the call and try to get that answer to you.

I'm just trying to come to the amount that you got to on your PPP loan of $2.9 million.

Well okay -- well that part's easy. So the PPP loan was based on 2.5 months of the approved -- the payroll number. And that payroll number includes the...

The operating payroll.

Yes, that's correct. And of course, capped at anyone making over $100,000, that will not be included.

Correct.

So it's a strict -- I don't know if you're trying to get to, but it's a strict calculation based upon our actual average labor.

Yes. And that number just also includes -- well let me just finish. That number includes also payment for...

Rent?

No, no, no, the rent is a part of the forgiveness. The calculation of the amount we could borrow includes payroll. And what that also includes is addition to hourly pay capped at $100,000 annualized. It includes our contribution per employee health insurance and also our contribution for the 401k and pension plans. And I believe that is the average -- we took the 2.5 months of average for 2019 to come up with that figure, of the amount borrowed, which was $2.9 million. So does that answer your question?

Would it be fair to say quarter 2's P&L expense for payroll will be substantially less?

Well I can't give you a perfect answer. As we've stated, we have not -- we've held off on terminations that might have been made as a result of getting the PPP loan, which is exactly what the loan was designed to accomplish. I can't tell you where we're going to be at the end of June and whether -- who knows what's going to happen, if they're going to be further legislation, I don't know. I can't tell you what our Q2 payroll is going to be. I just -- I can't see that far into the future.

No, no. My fundamental question was for a number of weeks, 8 weeks, someone else is paying the payroll.

That's correct. That's what the PPP is. That's what the protection -- the full CARES act is.

Maybe, Henry, is your question the following: will our 8 weeks of pay, be consistent with what approximately 8 weeks of pay was in weeks in 2019. Is that your question?

No, no. I think it's 8 weeks subsequent to when you received the loan. I presume your expense for salary expense will be diminished by that amount that you received?

No, it doesn't really work that way.

No.

The loan is separate from our expense structure. Our expense structure is what it is. It's unchanged, relatively speaking, unchanged, certainly on the personnel side. At some point in the future, there will be complete guidance on how the loan gets forgiven. I think what you're possibly conflating is the forgiveness of the loan and how that affects the profit and loss of the company.

Right.

Those are 2 separate -- while related, one doesn't go in and -- in other words, our payroll doesn't go down because we got the loan. It doesn't fill that bucket, so to speak. We have our payroll, whatever it is. If we satisfy the requirements of the forgiveness calculation, then there'll be a separate gain somewhere else when the loan gets forgiven. But our P&L will look -- if you extract the loan, our P&L will look quite similar to what it looked like in Q1 in terms of -- with regard to payroll. Does that answer your question?

Other gain is going to be in some future period?

Whenever the loan is forgiven, yes. And it will be...

Just so you're on -- I mean I don't know how familiar you are with this PPP requirements and all that, but all of us have spent an awful lot of time on this before we submitted it in. And we, again, we adhered to all the rules and the guidance and how the PPP funds can be used. And we're hopeful that a large portion of the $2.9 million will be forgiven. But we're not able to predict right now how much it will be or if the loan will be forgiven at all. The government will audit and all that stuff if they choose to or not, but we're following the rules strictly, of course, as we always do. For many reasons, including all these guidance, things that keep evolving, this PPP loan forgiveness application was just released by the SBA and the treasury on Friday. And so we can't make any predictions as to the time or the amount and all that stuff because it's kind of like in the air. We don't know. But we know that the government will be scrutinizing the eligibility of all companies such as us that received more than $2 million in loans. That we know.

I have 2 other questions if time permits. In the press release, it says that you had a loss of a large customer. I'm want to make sure I'm reading it correct. Is it a reduction in sales to a customer or you lost the customer?

We lost a customer, but we've picked up many up of that customer's customers, if you get what I'm saying. But we did lose the customer.

And was it a decision of yours due to credit? The customer wasn't happy? Price differences? What was the reason?

Price differences, that's actually price differences.

Price differences. And how much was that customer in the first quarter of '19?

We don't really give you that information? Maybe you can speak to it a little bit.

The customer's annual revenue in prior years is low 7 figures in a year.

I can't hear you.

That customer is a low 7-figure customer.

But having said that, we picked up many of those customers along the way now from -- with other customers. Do you understand what I'm saying?

The sales to that customer were a branded product. There are many other channels available to end users who would like to purchase that product. And if that is the product they want, they don't have to go to that customer. So while -- certainly, while that customer is unloading the last of our inventory, there was absolutely an impact. But once they were out of our product, people weren't just going to buy the replacement product with that customer. They're going to find another avenue to buy ours and there are a number of ways to get our product now and everybody's well aware. And those people purchasing that product are well aware where to get the products.

And whatever you we're selling this prior customer, was it anything that you still have inventory that was made only for them or this...

No. It was our regular branded product. There's nothing special about it.

(Operator Instructions) And our next question is Andrew Shapiro, Lawndale Capital Management.

I have a few follow-ups on Henry's questions, just get a little bit more clarity and then I have a few more. Regarding the lost automotive distributor customer, and the sale of it was a branded product. Can you give a little more color as to what line of automotive product or products this...

AIRCAT. It was AIRCAT.

AIRCAT with an A-I-R, right? And was this was a U.S. distributor, not the -- something over in Europe?

It was both. It was both. Right, Joe?

They have a loosely affiliated entity in Europe as well with that their sales there are de minimis.

Okay. And when you said low-7 figures, that was annual? That was not for Q1 last year?

Annual. Correct.

Okay. Okay, good. And then going back to Henry's questions on the PPP and prospective loan forgiveness stuff, which I'm very familiar with and yes, I'm sure over $2 million. The SBA and -- it's more SBA and not Congress, but they keep on shifting and changing to their whims and rules based on the political wins and criticisms. So who knows what is and isn't forgiven in a few more weeks? I think you'd probably agree that this is still an uncertain thing. But yes, it sounds as if when you do the forgiveness, it will be a separate line item. It sounds like it won't be a reduction of the various income statement items. That's correct? Whether it's for given or not, it's not coming through your normal gross margin line items. Is that correct?

Correct. Joe?

Correct.

When were the -- when were your -- the bonuses paid in March that you referred to bonuses in the press release?

March 10, I believe. First week of March.

All right. And then during the period of COVID-constrained business, or at least the period which the PPP loan is outstanding, has and we have -- you guys made cuts across the board here in variety of ways, including cutting the dividend temporarily. But during the period of the COVID constrained business or at least the period which the PPP loan is outstanding, has the Board implemented any reductions to the portion of the senior executive salaries that are in excess of the $100,000 annual rate cap limit in the PPP program?

Andrew, I don't know if I understand your question, but we're not discussing executive compensation on this call. But if you want to explain the question a little bit more, I'll see if I can answer that for you.

Okay. So in the PPP program, you have your -- it's your average annual -- it's your average monthly payroll. And that worked out 2.5x plus the various health and other bennies that were covered in it. That worked out to the $2.x million, the PPP loan, okay? Dividends have been suspended. So that's on the shareholder side. So there's things that are going on and what's involved in the PPP is with yours, Joe's and other senior executive salaries or $100,000 annual rate is included in the PPP, okay? But the other portions of your guys' compensation are above and beyond that, and that's not part of the PPP. So I'm asking, has the Board implemented any reductions to the portion of senior executive salary in excess of the rate caps?

We have not yet at this time. Not at this time. No we haven't.

All right. Regarding the credit facility, your release said there will be detailed discussion in the 10-Q, which unfortunately, has not yet been filed. Are you able to -- I don't know if that's standard language, but are you able to summarize any of these changes so that we may ask any pertinent questions prior to waiting until this current quarter's earnings call that won't be held until August.

Again, I don't know if I understand the question here. Joe, do you understand what he's asking?

You kind of implied there's changes. I didn't know if there's changes to the credit facility that will be detailed in the 10-Q, but the 10-Q is not out, so I can't read it, and I can't ask questions now, and it's just a shame not to be able to ask questions until next August. So I was just asking if you could summarize any changes in the credit facility that might be detailed in the 10-Q to come out.

In my knowledge, there are no changes. But Joe, you can add on to it.

The only change to the Q right now -- Q, excuse me, the change in the credit agreement is a change allowing for the PPP loan. The credit agreement prior to the issuance of the PPP loan did not allow us to borrow outside of the Capital One facility. I think more than...

So it's just a covenant change for the incurrence of additional debt?

That's correct. There are no changes.

Oh, I see. That's just what I wanted to know.

There's actually going to be a waiver.

Yes. Well whatever. Okay, a waiver, which makes a lot of sense...

And if I Andrew -- and Andrew, the PPP waiver was filed in an 8-K.

Yes. No, no. I did see all that. And I'm very happy to see that you guys qualified for and got it. And I'm hopeful that upon the subsequent audit because of the size of your loan, that you'll be able to have most, if not all of it, forgiven.

We -- the release talked about, I'm not sure if this is -- it sounds like it's outside of PTG, but maybe an ATP of Hy-Tech. What type of functions and costs go into what you called, early in the press release, outside finishing? And is that the same as what you referred to later in the press release as outside processing costs?

Joe?

Outside costs could be things like heat treating, metal prep I mean those would be the big ones. Metal hardening processes, things we can't do internally. So yes, I would say those are related comments. We probably just used different language for each of them.

Okay. So same stuff, different language in the release. Okay.

Yes.

And then are these outside costs a more permanent change in cost to you? Or is there anything Hy-Tech can do to mitigate such increases?

Yes, we certainly can do things to mitigate them and we analyze that stuff all the time. As you know, we're pretty vertically integrated. At this point, we don't have the ability to do any heat treating and much of our product is heat treated. We have looked at bringing that in-house, but at this point, it doesn't seem that cost-efficient to do, but that doesn't mean that -- we look at different ways in manufacturing things and depending on the kind of metal you bring in, you might not need it. So yes, we're always looking at that stuff, of course.

Okay. What, if any, are the big items remaining in the CapEx that you have identified is still planned for the rest of this year?

I'll take that one. Nothing of any major consequence. We're going to try to -- if the environment -- if the outlook doesn't change for the markets we serve, CapEx for the rest of the year will be more modest than it has been in quite a while. Obviously, we'll do maintenance CapEx and whether there's a return on expenditure for a new product or something like that, of course, we'll spend those kinds of monies. But -- and lastly, we just got done finishing a lot of IT expenditures around the whole business. So all the IT stuff is now all pretty current. So things are going to fall off a little bit here in the next few quarters for CapEx.

So with you already experiencing, we'll call it, unless there's a really bad resurgence in the fall and there's no visibility on therapies and there's probably not a vaccine, but even therapies would cause the governmental authorities not to close things down as tight as they were. With the bulk of the deepest part of the economic closures across the country now beginning to be rolled back, okay. And clearly, companies that are involved in vaccines are seen in influx, people who make masks are seeing an influx, et cetera, et cetera. Can you share your views and observations on the effect of the COVID-19 pandemic in terms of -- basically in the economy, there's a reallocation of resources going on. Certain businesses actually are doing well, whereas travel and other types of activities where people are socially gathered have been greatly damaged and potentially for the long term. With respect to the -- where the company has been or is projecting or focusing on selling, can you give some views here on the impact of the pandemic from both a supply point of view in your supply channels as well as a demand point of view?

Joe, I will let you answer this. But Andrew, it is virtually impossible for us or anybody else in this country or this world to make predictions and I don't know -- Joe, what's your...

Well I'm not asking the predictions, I'm asking. I mean, are you -- look, if you have customers who make masks, you might have seen the increases in certain subsectors of your customer base. Are there certain industries that you serve where you are seeing either no degradation or potential increase in activity versus obviously, certain areas of your business that have encountered serious headwinds until they reopen?

I can't think of any -- and Joe, you'll chime in, I can't think of any business, any customers that we have that have not shown degradation to a pretty important degree. Having said that, some of them, at this moment, have had a couple of good weeks of orders, et cetera, et cetera, but for the most part, it's been very, very low before that. And who knows what the future brings. But Joe, do you want to add to that? I don't know if I answered the question, Andrew, but I gave you what I think you're asking. But Joe, you want to add to that?

As I said earlier, I think PTG is faring the best. I think to the extent the government keeps ordering military equipment and we supply those guys, that will fare okay. The rest is going to be very industry specific. If you could tell me when oil and gas prices are going to be back up to $40 or $50 a barrel, that would be helpful. If you can tell me when planes are going to be back in the air, that would be helpful. If you can tell me when the mobile jobbers can start calling on garages again, that would be helpful. So each business has different drivers, and we certainly don't know when any of those things are going to turn around, but they're each going to be affected by a slightly different sort of driver obviously.

Sure. And as you moved into some new product development inside of Hy-Tech, for example, food processing got mentioned, you might have spent more into health care. And if it's food processing for certain types of food items that are consumed when people are stuck at home more than restaurants or something, then that might be areas that would have a tailwind to offset obviously, in many areas that have headwinds.

Yes. I don't -- let's put it this way. Despite the fact that I think PTG is faring the best, it is in no way going to grow in some way to mitigate materially any other fall off. It's just -- first of all, it's not that big. And second of all, it's hanging in there. It's not growing dramatically.

And are you seeing your run rate here at the end of May going into June as a result of partial reopenings? Are you seeing the run rate of orders and things starting to pick up?

No.

It's very, very inconsistent, very sporadically. We'll have a good day or 2 of good orders and -- from customers and a week of no orders. I would not say there's any signs yet of anything like that, that I've seen.

Okay. Can you quantify or provide a range of cash flow impacts and timing related to the provisions of the CARES Act that you referred to? I think it's primarily the tax provisions in terms of either the amount of money? I've seen other public companies already provide an estimate of the range of cash flows they think that they can claw back -- of cash they can claw back to because of CARES Act changes in tax NOL, carryforwards, carrybacks, et cetera. Do you have any kind of range of cash impact from this as of yet?

Joe?

I would say that -- and this is a rough estimate, over the rest of the year, we expect about $0.5 million of clawback. It's combination of stuff that was available to us and then stuff that became available to us. So just roughly $0.5 million over the next 3 quarters.

Okay. Well every little bit helps us to pare down that debt, right? I have a few more questions. I'll back out. Come back to me, please.

Sure.

(Operator Instructions) We have Andrew Shapiro with Lawndale Capital Management.

Okay. Regarding -- I think this is in Florida Pneumatic, I think that's where the aerospace is and all that. Regarding the military-oriented customer, was the increase limited to Q1? Or is there carryover work into the current and/or future quarters?

The military orders are not one-off for the most part. These are orders we would expect to continue. Of course, given COVID. I can't tell you exactly how, but they were not 1 project. These are tools and parts that we expect to develop a regular flow of orders from for the military on an ongoing basis.

And are there any particular aerospace programs to which you can tie as end-user customers for creating the end-user demand for your tools?

Like a particular type of aircraft or...

Is it the F-22 stealth? Is it the F-35? Various programs might be specific to the product demand of your aerospace customers, which I'm assuming it's not the military per se, but it may be one of the airframe makers or something else.

Yes, well 737 for sure. So...

Okay. Yes, but that's not military.

That's not military, not per se.

Yes. I was just wondering, the military program that created this.

No, no. There's no single program. These are general military aviation tools that are used across a variety of platforms. Now I will say this, whatever the hot production is at the moment, for that supplier to the military, that will obviously take more tools, but these tools are useful across many different kinds of jets.

Okay. Is it primarily Boeing? Or are there other?

No. It's not primarily Boeing. It's not primarily Boeing.

Okay. And has there been any tests...

Lockheed had...

Lockheed. As we've talked on prior calls, has there been any more indication of progress at all with the long-term plan to crack into Airbus?

They want to see visitors, Airbus. Boeing, by the way, Boeing is just starting to open up a little bit at that. But to our knowledge, there's 2 issues, one, at Airbus, they're not accepting visitors. And the second thing is the country that they're in doesn't accept visitors, so we can't get there right now.

It's only Zoom sales calls.

Yes. But I mean don't know if they're doing that either.

Okay. And again, it's probably hard to do an apples-to-apples comparison, but you have introduced lots of new products over the last few quarters. Is there -- are there any particular products or introductions that you did make that are showing -- since they're new products, presumably year-over-year, there would actually be revenue enhanced, even though it's in the face of a reduced economic activity from COVID, are there any particular new products introduced over the last few quarters that are worthy of any revenue generation call out from the current quarter?

There was before everything happened with COVID. But Joe, do you recall exactly what -- we were doing all kinds of things and all that stuff.

We were very excited about the introduction of our new fastening system tools for new platform system for military aircraft, and we were just starting to get a little momentum there. And while the people we're talking to are very excited about it, there's -- the orders are kind of on hold for now. So I would hope -- I'm hopeful that once things get back to something a little more in the way of normal production at the military aircraft providers, that we should get some flexibilities there. So the answer is yes, but nothing's happening now.

There appears to be no further questions at this time. I'd now like to turn the conference back over to our speakers for any additional closing comments.

We just -- we thank you for taking the time to come on our call today. And we wish, of course, we wish everybody well and to be safe and well. And we hope that by time we get together in August, that we have some -- the world is in a better place, and of course, P&F as well. Thank you all. Stay safe, and have a good day.

And this concludes today's call. Thank you for your participation. You may now disconnect.