P&F Industries, Inc. Reports Results For The Three And Nine-Month Periods Ended September 30, 2021

Rhea-AI Summary

P&F Industries reported a consolidated revenue of $12,985,000 for Q3 2021, up 4.7% year-over-year, with a nine-month total of $40,520,000, a 8.7% increase. Despite a net loss before taxes of $841,000 for Q3, net income for the nine-month period was $1,116,000. The company experienced a significant revenue increase in Hy-Tech's OEM product lines, up 91.3% in Q3, while facing supply chain challenges that affected retail and automotive sectors. Additionally, the forgiveness of a $2,929,200 Paycheck Protection Program loan positively impacted income.

Positive

• Q3 2021 revenue increased by 4.7% to $12,985,000 year-over-year.
• Nine-month revenue up by 8.7%, reaching $40,520,000.
• Hy-Tech's OEM line revenue surged by 91.3% in Q3 2021.
• Net income for the nine months improved markedly to $1,116,000 from a loss in the previous year.
• Gross margin improved by 2.2 percentage points in Q3 2021.

Negative

• Net loss before income taxes for Q3 was $841,000.
• Supply chain issues adversely affected retail and automotive sectors.
• Aircat sales decreased by $362,000 in Q3 due to distribution strategy changes.

MELVILLE, N.Y., Nov. 11, 2021 /PRNewswire/ -- P&F Industries, Inc. (NASDAQ: PFIN) today announced its results from operations for the three and nine-month periods ended September 30, 2021. The Company is reporting net revenue of $12,985,000, and $40,520,000, respectively, for the three and nine-month periods ended September 30, 2021, compared to $12,406,000 and $37,276,000, respectively, for the same periods in 2020.  For the three and nine-month periods ended September 30, 2021, the Company is reporting a net loss before income taxes of $841,000, and net income before taxes of $1,116,000, respectively, compared to net losses before income taxes of $1,193,000 and $5,651,000, respectively, for the same periods a year ago. Further, for the three-and nine-month periods ended September 30, 2021, the Company is reporting a net loss after-taxes of $733,000 and net income after taxes of $1,383,000, respectively, compared to net losses after-taxes of $857,000 and $3,996,000, respectively, for the three and nine-month periods ended September 30, 2020. The income before income taxes for the nine-months ended September 30, 2021, included the recognition of the forgiveness of a $2,929,200 Paycheck Protection Program loan. The Company's basic and diluted loss per share for the three-month period ended September 30, 2021, was $0.23, while its basic earnings per share for the nine-month period ended September 30, 2021, was $0.44, and diluted earnings per share for the same period was $0.43. For the three and nine-month periods ended September 30, 2020, its basic and diluted loss per share were $0.27 and $1.27, respectively.

Richard Horowitz, the Company's Chairman of the Board, Chief Executive Officer and President commented, "COVID-19 continues to impact our businesses; be it as a limiting factor to our ability to engage with current and future customers or, what we believe is a primary cause for the supply-chain crisis.  That said, I am pleased to report that consolidated revenue increased by 4.7% this quarter, compared to the same three-month period in 2020, which was driven primarily by a 91.3% increase in Hy-Tech's OEM line with revenue increasing $796,000. Overall, for the third quarter of 2021, Hy-Tech's revenue increased by $653,000, or 24.7% over the same period in 2020. Although we were beginning to see improved sales opportunities during the third quarter compared to the same three-month period a year ago, we also began to encounter strong headwinds within our supply-chains.  Specifically, a significant portion of Asian-sourced items, which are marketed to our retail and automotive sectors have and continue to be adversely affected by the massive congestion at ports of entry. We believe these delays were a major cause of the decline in revenue  in both sectors. We are attempting to mitigate this issue by placing larger than normal purchase orders with our overseas vendors and believe the arrival of these orders in early 2022 should help to reduce inventory shortages in 2022.  During the third quarter of 2021, Aircat sales relative to the same period in 2020 decreased by $362,000.  This was primarily caused by two factors.  First, pent up demand for our products that were not generally available through our largest on-line channel during the second quarter of 2020 caused a surge in orders during the third quarter of 2020, which did not repeat in 2021.  Second, during the third quarter of 2021, Aircat made a change to its channel distribution strategy which caused a temporary pause in shipments to the channel as customer inventory levels were adjusted. We expect shipments to resume to prior levels in the fourth quarter of 2021.  Further, we are glad to report that we are seeing a positive rebound in the aerospace market. As a result, our Aerospace revenue increased 44.5%, when compared to the third quarter of 2020.

Consolidated gross margin for the three-month period ended September 30, 2021, improved 2.2 percentage points over the same period in 2020. This was driven primarily by higher gross margin at Hy-Tech, which was mostly due to improved manufacturing overhead absorption. Additionally, a better mix of product at all locations contributed to the stronger gross margin. However, significant increases in ocean freight costs during the third quarter partially offset these improvements. We have  raised our selling prices on most of our products to levels which we believe substantially offset these increased freight costs.

Mr. Horowitz concluded, "We are encouraged by the improved results over the prior year and remain optimistic for the future. However, for now, the global COVID-19 pandemic and its peripheral negative effects remains an issue. We intend to do our utmost to continue to serve our customers, while ensuring the health and safety of our employees."

The Company will be reporting the following:

TRENDS AND UNCERTAINTIES

COVID-19 PANDEMIC

On March 11, 2020, the World Health Organization designated the recent novel coronavirus, or COVID-19, as a global pandemic. COVID-19 was first detected in Wuhan City, Hubei Province, China and continued to spread, significantly impacting various markets around the world, including the United States. Various policies and initiatives have been implemented to reduce the global transmission of COVID-19.

The COVID-19 virus and the resultant global economic down-turn continues to have a negative impact on our three and nine-month 2021 results.  Additionally, we believe the supply-chain crisis, which we believe is related to the pandemic. Beginning in early 2021, but magnifying during the third quarter of 2021, we encountered severe shipping / receiving delays of inventory / containers from our Asian suppliers, which has caused intermittent shortages of inventory. Further, the costs of international freight has greatly increased. In addition, the COVID-19 pandemic has caused many of our customers and potential customers to refuse on-site visits, which is critical to generating revenue. We believe that until the above issues subside, our business will likely continue to be adversely affected.

BOEING/AEROSPACE

The Federal Aviation Administration ("FAA") and the European Union Aviation Safety Agency ("EASA") have lifted the grounding of the 737 MAX.  Production is still very limited due to the inventory at Boeing and the reluctance of airlines to accept deliveries due to weak air travel demand, as well as the lack of certification by China. This will likely continue to have an adverse effect on our revenue. In addition, production of military and other commercial aircraft throughout the industry has slowed as well, we believe due to the ongoing global COVID-19 pandemic. However, we believe when all other commercial and military production lines throughout the United States come back online, an increase in our revenue should follow.

OIL AND GAS

The profitability of crude oil production generally declines when prices fall. As a result, as prices dropped in 2020, production slowed worldwide. However, the price of crude oil has begun to improve. As such, orders and activity during this quarter have begun to strengthen. In addition to the price of crude oil we monitor the number of active rotary rigs, which is discussed elsewhere. In spite of the return of crude oil prices to pre-pandemic levels, we believe many oil drilling companies have forgone the typical maintenance that would utilize our tools in order to continue cash-flow generating production activities in lieu of shutting down for required maintenance. We cannot say for certain when the typical maintenance activity will resume.

TECHNOLOGIES

We believe that over time, several newer technologies, and features will have a greater impact on the market for our traditional pneumatic tool offerings. The impact of this evolution has been felt initially by the advent of advanced cordless operated hand tools in the automotive aftermarket. For certain non-automotive applications, we have begun to develop cordless models of tools and expect to introduce these products in the near future.

OTHER MATTER

In May 2021, Florida Pneumatic detected a ransomware attack on its information technology systems that caused data to be encrypted. At the present time, all critical Florida Pneumatic information technology systems have been remediated and are operational.  We believe that our corporate office and our other subsidiaries, all of which operate on separate, independent networks, were not affected by this incident.

REVENUE

During the three and nine-month period ended September 30, 2021, various product lines were affected to some degree by the global COVID-19 pandemic, which caused orders and revenue for those product lines for the same periods, to be less than pre-pandemic levels.

The tables below provide an analysis of our net revenue for the three and nine-month periods ended September 30, 2021, and 2020:

Consolidated

		Three months ended September 30,
								Increase (decrease)
		2021			2020			$			%
Florida Pneumatic		$	9,607,000		$	9,681,000		$	(74,000)		(0.8)	%
Hy-Tech			3,378,000			2,725,000			653,000		24.0
Consolidated		$	12,985,000		$	12,406,000		$	579,000		4.7	%
		Nine months ended September 30,
								Increase (decrease)
		2021			2020			$			%
Florida Pneumatic		$	31,221,000		$	28,351,000		$	2,870,000		10.1	%
Hy-Tech			9,299,000			8,925,000			374,000		4.2
Consolidated		$	40,520,000		$	37,276,000		$	3,244,000		8.7	%

Florida Pneumatic

Florida Pneumatic markets its air tool products to four primary sectors within the pneumatic tool market; Automotive, Retail, Aerospace and Industrial. It also generates revenue from its Berkley products line, as well as a line of air filters and other OEM parts ("Other").

		Three months ended September 30,
		2021					2020					Increase (decrease)
					Percent of					Percent of
		Revenue			revenue		Revenue			revenue		$			%
Automotive		$	3,168,000		33.0	%	$	3,530,000		36.5	%	$	(362,000)		(10.3)	%
Retail			3,222,000		33.5			3,718,000		38.4			(496,000)		(13.3)
Industrial			1,257,000		13.1			1,044,000		10.8			213,000		20.4
Aerospace			1,832,000		19.1			1,268,000		13.1			564,000		44.5
Other			128,000		1.3			121,000		1.2			7,000		5.8
Total		$	9,607,000		100.0	%	$	9,681,000		100.0	%	$	(74,000)		(0.8)	%

For most of the third quarter of 2021, much of U.S. and global economies were still feeling the ill effects of the global COVID-19 pandemic. Further, the negative impact of the world-wide supply-chain crisis adversely affected nearly all of Florida Pneumatic's product lines. Most seriously affected were its Retail and Automotive inventory levels, which in turn hampered its ability to fulfill orders in a timely manner. In an effort to combat future potential shipping issues, Florida Pneumatic has increased its purchases, which has caused a temporary up-tick in its inventory levels through at least the first half of 2022. The decrease in sales in our Automotive sector is primarily due to a one-time reduction in the amount of inventory held by the distribution channel. Florida Pneumatic's third quarter 2021 Industrial revenue improved 20.4 percent over the same period a year ago. This increase, we believe is due in part to a continuation of the recovery than began during the second quarter occurring in certain sectors from the ill effects of the pandemic.  Most of the Aerospace revenue is attributable to Jiffy Air Tool. The Boeing Corporation is a major customer of Jiffy. The Boeing 737 MAX aircraft had been grounded by the FAA and the EASA in March 2019. Earlier this year both agencies lifted the "No Fly" ruling it imposed on all Boeing 737 MAX aircraft, allowing it to begin flights in the United States, and Europe. As a result, order activity began to improve, which was a primary factor for the improvement in Aerospace revenue when comparing the third quarters of 2021 and 2020. However, it is uncertain how long, if ever, it will take for the Boeing Corporation to increase its manufacturing of its 737 MAX aircraft to a volume that would be comparable to pre-COVID-19 levels. Lastly, orders from other aerospace companies and military aircraft manufacturers improved slightly this quarter.

		Nine months ended September 30,
		2021					2020					Increase (decrease)
					Percent of					Percent of
		Revenue			revenue		Revenue			revenue		$			%
Automotive		$	11,053,000		35.4	%	$	9,690,000		34.2	%	$	1,363,000		14.1	%
Retail			10,775,000		34.5			9,569,000		33.8			1,206,000		12.6
Industrial			3,919,000		12.6			2,383,000		8.4			1,536,000		64.5
Aerospace			5,094,000		16.3			6,341,000		22.4			(1,247,000)		(19.7)
Other			380,000		1.2			368,000		1.2			12,000		3.3
Total		$	31,221,000		100.0	%	$	28,351,000		100.0	%	$	2,870,000		10.1	%

Despite the impact during the third quarter 2021, relating to the ongoing COVID-19 pandemic and supply chain delays, Florida Pneumatic's Automotive revenue during the nine-month period ended September 30, 2021, is more than 14 percent greater than the amount reported during the same period in 2020.   This improvement is driven by growing demand for its AIRCAT line of pneumatic hand tools, plus stronger sales generated by its UK operations. Additionally, Florida Pneumatic's Retail revenue improved 12.6 percent during the nine-month period ended September 30, 2021, compared to the same period in 2020, driven primarily by demand for spray gun-type tools and accessories being sold to The Home Depot, which we believe are being used to apply disinfectant to combat the COVID-19 virus.  Further, its Industrial revenue during the nine-month period ended September 30, 2021, also encountered growth, which we believe is driven primarily by certain sectors beginning to recover from the effects of the pandemic.  Partially offsetting the above increases, is the year-to-date decline in Florida Pneumatic's Aerospace revenue. Most of the Aerospace revenue is attributable to Jiffy Air Tool, whose major customer is the Boeing Corporation. We believe however, that as both domestic and international travel restrictions ease, and Boeing and other major aircraft manufacturers begin to produce and deliver new aircraft, we could see a continuation of the improvement we witnessed in the third quarter of this year.  However, no assurance can be made, and it is possible that this sector will remain depressed for the foreseeable future.  

Hy-Tech

Hy-Tech designs, manufactures, and sells a wide range of industrial products which are categorized as ATP for reporting purposes. In addition to Engineered Solutions, products and components manufactured for other companies under their brands are included in the OEM category in the table below. PTG revenue is comprised of products manufactured and sold by Hy-Tech's gear business. NUMATX, Thaxton and other peripheral product lines, such as general machining, are reported as Other.

		Three months ended September 30,
		2021					2020					Increase (decrease)
					Percent of					Percent of
		Revenue			revenue		Revenue			revenue		$			%
OEM		$	1,668,000		49.4	%	$	872,000		32.0	%	$	796,000		91.3	%
ATP			751,000		22.2			624,000		22.9			127,000		20.4
PTG			882,000		26.1			1,027,000		37.7			(145,000)		(14.1)
Other			77,000		2.3			202,000		7.4			(125,000)		(61.9)
Total		$	3,378,000		100.0	%	$	2,725,000		100.0	%	$	653,000		24.0	%

During the third quarter of 2021, Hy-Tech continued to encounter modest signs that the ill effects of the pandemic were beginning to ease. As a result, its total revenue for the three-month period ended September 30, 2021, increased 24 percent, over the same period a year ago.  Customer orders for its OEM and ATP product lines improved when compared to the same three-month period a year ago, driving revenue growth of 91.3 percent and 20.4 percent, respectively. Significant orders from two of its major OEM customers, along with its Engineered Solutions approach, which continues to gain market momentum, provided the impetus for  the current quarter growth in OEM.  Its ATP revenue improvement and an increase in the number of oil and gas rigs. According to Baker Hughes Inc., the average number of oil and gas rotary rigs in operation during the fiscal third quarter 2021 were 496, compared to 254 during the same three-month period in 2020. Additionally, in an effort to increase market penetration, Hy-Tech has "refreshed" and or improved a number of its ATP tools, as well as the marketing of its Magnum Force line of large impact wrenches. Hy-Tech believes that the Magnum Force line, a series of super duty industrial impact tools, that are designed specifically for use in demanding environments, such as refinery turnarounds, power generation outages, structural steel erection, mining and other similar bolting applications, is beginning to gain acceptance. The above increases were offset by a quarter over quarter decline in its PTG revenue. PTG continues to encounter delays and disruptions in its outside third-party processors, creating delays in its delivery time to its customers.  Additionally, PTG continues to encounter reluctance to permit face to face visitation, which we believe is critical to completing the sale of PTG products and services, by its current and prospective customers.  The decline in Hy-Tech's Other revenue was due to a large order for its Thaxton products shipping during the third quarter in 2020, with no similar order this quarter.

		Nine months ended September 30,
		2021					2020					Increase (decrease)
					Percent of					Percent of
		Revenue			revenue		Revenue			revenue		$			%
OEM		$	4,688,000		50.4	%	$	3,513,000		39.4	%		1,175,000		33.4	%
ATP			2,242,000		24.1			2,254,000		25.2			(12,000)		(0.5)
PTG			2,132,000		22.9			2,783,000		31.2			(651,000)		(23.4)
Other			237,000		2.6			375,000		4.2			(138,000)		(36.8)
Total		$	9,299,000		100.0	%	$	8,925,000		100.0	%		374,000		4.2	%

Hy-Tech's year-to-date revenue improvement over the same nine-month period in 2020 was driven by continued growth in its OEM line, which saw a 33.4 percent increase, the majority of which occurring during the third quarter of 2021.  This improvement was partially offset by i) the ongoing negative effects on the U.S. economy caused by the global COVID-19 pandemic, particularly adversely affecting PTG revenue and operations; and ii) delays and disruptions from outside third-party processors. As discussed above, we are beginning to see improvement in the number and size of ATP orders and are optimistic about market acceptance of our Magnum Force line.  PTG's nine-month 2021 revenue declined due primarily to the factors discussed earlier.  However, as travel restrictions ease and customers begin to accept visitors, we believe order levels should improve. In addition, we are working with vendors and improving internal systems toward the goal of greatly reducing supply chain issues moving forward.

GROSS MARGIN/PROFIT

		Three months ended September 30,						Increase
		2021			2020			Amount				%
Florida Pneumatic		$	3,381,000		$	3,291,000		$	90,000			2.7	%
As percent of respective revenue			35.2	%		34.0	%		1.2	%	pts
Hy-Tech		$	593,000		$	232,000		$	361,000			155.6
As percent of respective revenue			17.6	%		8.5	%		9.1	%	pts
Total		$	3,974,000		$	3,523,000		$	451,000			12.8	%
As percent of respective revenue			30.6	%		28.4	%		2.2	%	pts

The improvement in Florida Pneumatic's gross margin was due primarily to product mix. Specifically, the increase in Industrial and Aerospace revenue, both of which generally have stronger gross margin than Florida Pneumatic's other product lines, contributed to the increase in gross margin. Additionally, stronger overhead absorption at Jiffy this quarter, compared to the same three-month period a year ago contributed to the improved gross margin.  However, increased freight costs partially offset the improvement. Florida Pneumatic's ocean freight costs have increased approximately four-fold when compared to a year ago. We are attempting to pass through a portion of these increases; however, we may not be able to fully neutralize the negative effects. The improvement in Hy-Tech's gross margin is due primarily to its overall product/customer mix. Additionally, there was a slight improvement in its manufacturing overhead absorption this quarter, when compared to the same three-month period in 2020, further contributing to its improved gross margin.

		Nine months ended September 30,						Increase
		2021			2020			Amount				%
Florida Pneumatic		$	11,746,000		$	10,274,000		$	1,472,000			14.3	%
As percent of respective revenue			37.6	%		36.2	%		1.4	%	pts
Hy-Tech		$	1,712,000		$	779,000		$	933,000			119.8
As percent of respective revenue			18.4	%		8.7	%		9.7	%	pts
Total		$	13,458,000		$	11,053,000		$	2,405,000			21.8	%
As percent of respective revenue			33.2	%		29.7	%		3.5	%	pts

Generally, customer and product mix greatly affect Florida Pneumatic's gross margin. As discussed earlier, the increase in Florida Pneumatic's higher margin Industrial revenue contributed to the higher gross margin this quarter, compared to the same nine-month period in 2020. This improvement was partially offset by the significant increases in its ocean freight costs that have been incurred for most of 2021. Additionally, in early 2021, Jiffy was under absorbing its manufacturing overhead, due to the reduction of product being produced. However, with increased production during the third quarter of 2021 this under absorption issue has been reduced.  Hy-Tech's manufactures most of its products. Its gross margin is impacted by customer/product mix.   Factors such as absorption of manufacturing overhead, raw material pricing and third-party costs also affect its gross margin. Hy-Tech's gross margin for the nine months ended September 30, 2021, improved 9.7 percentage points, when comparing the three-month periods ended September 30, 2021, and 2020. During the nine-month period ended September 30, 2020, Hy-Tech recorded additional charges to its OSMI allowance and an adjustment to its physical inventory, both adversely affecting its 2020 gross margin, whereas there were no additional charges incurred during the nine months ended September 30, 2021.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") include salaries and related costs, commissions, travel, administrative facilities costs, communications costs and promotional expenses for our direct sales and marketing staff, administrative and executive salaries and related benefits, legal, accounting, and other professional fees as well as general corporate overhead and certain engineering expenses.

During the third quarter of 2021, our SG&A were $4,734,000, compared to $4,673,000 incurred during the same three-month period in 2020. The most significant factors contributing to the net increase were: i) Compensation expenses increased $74,000. Compensation expense is comprised of base salaries and wages, accrued performance-based bonus incentives and associated payroll taxes and employee benefits; ii) information systems-related expenses increased $35,000, driven by increased cyber security costs, and iii) a decline of $31,000 in professional fees and expenses.

Our SG&A expenses for the nine-month period ended September 30, 2021, were $15,183,000, compared to $14,983,000, during the same nine-month period in 2020. There were significant factors which contributed to the net change. First, driven by an increase of more than $3,200,000 in revenue, our variable expenses increased $487,000. Variable expenses include among other items, commissions, freight out, travel, advertising, shipping supplies and warranty costs. Additionally, we incurred approximately $318,000 in additional information systems costs during the nine-month period ended September 30, 2021, which related to the May 2021 ransomware attack at our Florida Pneumatic subsidiary. Further, compensation expenses increased $72,000. Partially offsetting the above increases was a decline in professional fees of $576,000, most of which was driven by expenses in 2020 related to the relocation and set up of the two gear businesses that were acquired in late 2019, none of the relocation expenses repeated in 2021. Lastly, when comparing the nine-month periods ended September 30, 2021, and 2020, depreciation and amortization expenses declined $75,000, corporate expenses and stock-based compensation declined $30,000 and $19,000, respectively.

OTHER INCOME

On April 20, 2020, we received a Paycheck Protection Program ("PPP") loan, in the amount of $2,929,000. Under the terms of the CARES Act, as amended, we were eligible to apply for forgiveness for all or a portion of the PPP loan.  In February 2021, we filed an application for forgiveness with the lender, who approved this submission and submitted the application for forgiveness to the SBA. On June 9, 2021, we were advised that the SBA had approved our PPP loan forgiveness application and as such, the PPP loan and interest were forgiven in its entirety.  Accordingly, the lender applied the funds and paid off PPP loan principal in its entirety and interest in full. In accordance with current accounting guidance this forgiveness of debt and related accrued interest is to be accounted for as Other Income and shall not be considerable as taxable income.

31

 

INTEREST

		Three months ended September 30,						Decrease
		2021			2020			Amount			%
Interest expense attributable to:
Short-term borrowings		$	10,000		$	12,000		$	(2,000)		(16.7)	%
PPP loan			—			5,000			(5,000)		(100.0)
Amortization expense of debt issue costs			4,000			4,000			—		—
Total		$	14,000		$	21,000		$	(7,000)		(33.3)	%
		Nine months ended September 30,						Decrease
		2021			2020			Amount			%
Interest expense attributable to:
Short-term borrowings		$	28,000		$	95,000		$	(67,000)		(70.5)	%
PPP loan			(19,000)			11,000			(30,000)		(272.7)
Amortization expense of debt issue costs			12,000			12,000			—		—
Total		$	21,000		$	118,000		$	(97,000)		(82.2)	%

The Applicable Margin, as defined in our Credit Agreement was the same during the three-month periods ended September 30, 2021, and 2020. The average balance of short-term borrowings during the three-month periods ended September 30, 2021, and 2020, were $2,050,000 and $2,260,000, respectively.

In late April 2020, we borrowed approximately $2.9 million from BNB Bank as provided under the Coronavirus Aid, Relief and Economic Security ("CARES") Act. The PPP Loan accrued interest at a rate of 1.0% per annum. Pursuant to the Flexibility Act, interest on any unforgiven amount is deferred until the forgiveness determination is made by the SBA. On June 9, 2021, we received notice that the SBA had forgiven our obligation to repay the PPP loan and related accrued interest.  As such, during the three-month period ended June 30, 2021, we recorded a reversal of the accrued interest related to the PPP loan.

Lastly, we and our bank amended the Credit Agreement in February 2019. The debt issue costs are associated with such amendment.

INCOME TAXES

At the end of each interim reporting period, we compute an effective tax rate based upon our estimated full year results. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. Accordingly, our effective tax rates for the three-month and nine-month periods ended September 30, 2021, were a tax benefit of 12.8% and 23.9%, compared to a tax benefit of 28.2% and 29.3% for the same periods in the prior year. The effective tax rates for all periods presented were impacted primarily by state taxes, and non-deductible expenses. Additionally, for the nine-month period ended September 30, 2021, the gain resulting from the forgiveness of debt of the PPP loan was not included in the computation of the effective tax rate.

On March 27, 2020, the CARES Act was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitation and technical corrections to tax depreciation methods for qualified improvement property. On March 11, 2021, the American Rescue Plan Act of 2021 (the "ARP") was signed into law to provide relief as a result of the COVID-19 pandemic. The ARP, among other things, extended and modified the employee retention credit. As of September 30, 2021, the Company is evaluating the impact of the ARP on the Company's effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES

We monitor such metrics as days' sales outstanding, inventory requirements, inventory turns, estimated future purchasing requirements and capital expenditures to project liquidity needs, as well as evaluate return on assets. Our primary sources of funds are operating cash flows, existing working capital and our Revolver Loan ("Revolver") with our Bank.

We gauge our liquidity and financial stability by various measurements, some of which are shown in the following table:

		September 30, 2021			December 31, 2020
Working capital		$	23,200,000		$	21,258,000
Current ratio			3.26 to 1			3.57 to 1
Shareholders' equity		$	42,918,000		$	41,538,000

Credit facility

Our Credit Facility will be discussed in the Notes to the consolidated financial statements.

Cash flows

During the nine-month period ended September 30, 2021, our net cash decreased to $789,000 from $904,000 on December 31, 2020. Our total bank debt at September 30, 2021, was $3,295,000 compared to $4,303,000 at December 31, 2020, included borrowings under the CARES Act. The total debt to total book capitalization (total debt divided by total debt plus equity) at September 30, 2021, was 7.1% compared to 9.4% at December 31, 2020.

At September 30, 2021, our short-term or Revolver borrowing was $3,295,000 compared to $1,374,000, at December 31, 2020. Additionally, at September 30, 2021, and December 31, 2020, there was approximately $12,700,000 and $11,971,000, respectively, available to us under the Revolver arrangement.

During the nine-month period ended September 30, 2021, we used $428,000 for capital expenditures, compared to $956,000 during the same period in the prior year. Capital expenditures for the balance of 2021 is expected to be approximately $381,000, some of which may be financed through our credit facilities with Capital One Bank or financed through independent third-party financial institutions. The remaining 2021 capital expenditures will likely be for facility upgrades.

 

ABOUT P&F INDUSTRIES, INC.

P&F Industries, Inc., through its wholly owned subsidiaries, is a leading manufacturer and importer of air-powered tools and accessories sold principally to the aerospace, industrial, automotive, and retail markets.  P&F's products are sold under its own trademarks, as well as under the private labels of major manufacturers and retailers.

OTHER INFORMATION

P&F Industries Inc. has scheduled a conference call later today  at 11:00 A.M. Eastern Time, to discuss its third quarter 2021 results and financial condition.  Investors and other interested parties who wish to listen to or participate can dial 1-866-337-5532. It is suggested you call at least 10 minutes prior to the call commencement.  For those who cannot listen to the live broadcast, a replay of the call will also be available on the Company's website beginning on or about November 12, 2021.

Forward Looking Statement

The Private Securities Litigation Reform Act of 1995 (the "Reform Act") provides a safe harbor for forward-looking statements made by or on behalf of P&F Industries, Inc. and subsidiaries ("P&F", or the "Company"). P&F and its representatives may, from time-to-time, make written or verbal forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and in its reports to shareholders. Generally, the inclusion of the words "believe," "expect," "intend," "estimate," "anticipate," "will," "may," "would," "could," "should," and their opposites and similar expressions identify statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. Any forward-looking statements contained herein, including those related to the Company's future performance, are based upon the Company's historical performance and on current plans, estimates and expectations. All forward-looking statements involve risks and uncertainties. These risks and uncertainties could cause the Company's actual results for all or part the 2021 fiscal year and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company for a number of reasons including, but not limited to:

	·	Risks related to the global outbreak of COVID-19 and other public health crises;
	·	Risks associated with sourcing from overseas;
	·	Disruption in the global capital and credit markets;
	·	Importation delays;
	·	Customer concentration;
	·	Unforeseen inventory adjustments or changes in purchasing patterns;
	·	Market acceptance of products;
	·	Competition;
	·	Price reductions;
	·	Exposure to fluctuations in energy prices;
	·	The strength of the retail economy in the United States and abroad;
	·	Risks associated with Brexit;
	·	Adverse changes in currency exchange rates;
	·	Interest rates;
	·	Debt and debt service requirements;
	·	Borrowing and compliance with covenants under our credit facility;
	·	Impairment of long-lived assets and goodwill;
	·	Retention of key personnel;
	·	Acquisition of businesses;
	·	Regulatory environment;
	·	Litigation and insurance;
	·	The threat of terrorism and related political instability and economic uncertainty; and
	·	Business disruptions or other costs associated with information technology, cyber-attacks, system implementations, data privacy or catastrophic losses,

and those other risks and uncertainties described in its Annual Report on Form 10-K for the year ended December 31, 2020, its Quarterly Reports on Form 10-Q, and its other reports and statements filed by the Company with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. The Company cautions you against relying on any of these forward-looking statements.

 

P & F INDUSTRIES, INC. AND UBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands $)	September 30, 2021				December 31, 2020
	(Unaudited)				(Audited)
Assets
Cash		$	789			$	904
Accounts receivable - net			8,448				7,468
Inventories			21,623				18,362
Prepaid expenses and other current assets			2,608				2,806
Total current assets			33,468				29,540
Net property and equipment			8,279				9,395
Goodwill			4,446				4,449
Other intangible assets - net			5,749				6,226
Deferred income taxes - net			496				226
Right-of-use assets – operating leases			3,031				3,281
Other assets – net			80				250
Total assets		$	55,549			$	53,367
Liabilities and Shareholders' Equity
Short-term borrowings		$	3,295			$	1,374
Accounts payable			3,598				2,199
Accrued compensation and benefits			1,231				525
Accrued other liabilities			1,328				1,354
Current leased liabilities – operating leases			816				847
Current maturities of long-term debt (PPP loan)			---				1,983
Total current liabilities			10,268				8,282
Noncurrent leased liabilities – operating leases			2,261				2,474
Long-term debt, less current maturities (PPP loan)			---				946
Other liabilities			102				127
Total liabilities			12,631				11,829
Total shareholders' equity			42,918				41,538
Total liabilities and shareholders' equity		$	55,549			$	53,367

 

P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS  (Unaudited)
	Three months ended September 30,				Nine months ended September 30,
(In Thousand $)	2021		2020		2021		2020
Net revenue	$	12,985	$	12,406	$	40,520	$	37,276
Cost of sales	9,011		8,883		27,062		26,223
Gross profit	3,974		3,523		13,458		11,053
Selling, general and administrative expenses	4,734		4,673		15,183		14,983
Impairment of goodwill and other intangible assets	---		---		---		1,612
Operating loss	(760)		(1,150)		(1,725)		(5,542)
Loss on sale of property and equipment	(67)		(22)		(67)		(22)
Other income	---		---		2,929		31
Interest expense	(14)		(21)		(21)		(118)
(Loss) income before income taxes	(841)		(1,193)		1,116		(5,651)
Income tax benefit	(108)		(336)		(267)		(1,655)
Net (loss) income	$	(733)	$	(857)	$	1,383	$	(3,996)

 

P&F INDUSTRIES INC. AND SUBSIDIARIES
(LOSS) EARNINGS PER SHARE (UNAUDITED)
		Three months ended September 30,								Nine months ended September 30,
			2021				2020				2021				2020
Basic (loss) earnings per share		$	(0.23)			$	(0.27)			$	0.44			$	(1.27)
Diluted (loss) earnings per share		$	(0.23)			$	(0.27)			$	0.43			$	(1.27)

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES		Nine months
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)		ended September 30,
(In Thousands $)		2021				2020
Cash Flows from Operating Activities:
Net income (loss)		$	1,383			$	(3,996)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Non-cash and other charges:
Depreciation and amortization			1,345				1,339
Amortization of other intangible assets			474				544
Amortization of operating lease assets			670				675
Amortization of debt issue costs			12				12
Amortization of consideration payable to a customer			202				202
Provision for losses on accounts receivable			19				47
Stock-based compensation			4				39
Restricted stock-based compensation			35				33
Forgiveness of PPP loan			(2,929)				---
Deferred income taxes			(267)				(771)
Loss on sale of fixed assets			33				22
Fair value adjustment to assets held for sale			40				---
Gain on lease obligation settlement			---				(31)
Impairment of goodwill and other intangible assets			---				1,612
Changes in operating assets and liabilities:
Accounts receivable			(1,007)				712
Inventories			(3,274)				3,384
Prepaid expenses and other current assets			248				(341)
Other assets			---				(32)
Accounts payable			1,406				708
Accrued compensation and benefits			711				(1,190)
Accrued other liabilities and other current liabilities			(14)				(239)
Payments on lease liabilities			(665)				(702)
Other liabilities			(36)				(2)
Total adjustments			(2,993)				6,021
Net cash (used in) provided by operating activities			(1,610)				2,025
Cash Flows from Investing Activities:
Capital expenditures		$	(428)			$	(956)
Proceeds from disposal of property and equipment			28				1
Net cash used in investing activities			(400)				(955)
Cash Flows from Financing Activities:
Dividend payments			—				(157)
Proceeds from exercise of stock options			—				3
Net proceeds (repayments) relating to short-term borrowings			1,921				(3,314)
Proceeds from PPP loan			—				2,929
Net cash provided by (used in) financing activities			1,921				(539)
Effect of exchange rate changes on cash			(26)				(3)
Net (decrease) increase in cash			(115)				528
Cash at beginning of period			904				380
Cash at end of period		$	789			$	908
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)  (continued)
(In Thousands $)
Supplemental disclosures of cash flow information:
Cash paid for:
Interest		$	25			$	109
Taxes		$	12				26
Cash paid for amounts included in the measurement of operating lease liabilities		$	6			$	5
Noncash information:
Right of Use ("ROU") assets recognized for new operating lease liabilities		$	320			$	140

 

 

P & F INDUSTRIES, INC. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURE AND RECONCILIATION
COMPUTATION OF (EBITDIA) - EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, IMPAIRMENT, AND AMORIZATION
(UNAUDITED)
(In Thousands $)		For the three-month periods ended September 30,									For the nine-month periods ended September 30,
				2021				2020				2021			2020
Net (loss) income (2)		$		(733)			$	(857)			$	1,383		$	(3,996)
Add:
Depreciation and amortization				601				616				1,819			1,883
Interest expense			14					21				21			118
Impairment			---					---				---			1,612
Income tax benefit				(108)				(336)				(267)			(1,655)
				507				301				1,573			1,958
EBITDA (1)		$		(226)			$	(556)			$	2,956		$	(2,038)

	(1)	The Company discloses a tabular comparison of EBITDIA, which is a non-GAAP measure because it is instrumental in comparing the results from period to period.  The Company's management believes that the comparison of EBITDIA provides greater insight into the Company's results of operations for the periods presented.  EBITDIA should not be considered in isolation or as a substitute for operating income as reported on the face of our statement of operations.
	(2)	Included in the nine-month Net income for 2021 is the forgiveness of the $2,929,200 PPP loan.

 

 

 

 

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SOURCE P&F Industries, Inc.

FAQ

What are PFIN's Q3 2021 financial results?

PFIN reported a Q3 2021 revenue of $12,985,000, a 4.7% increase year-over-year.

How did the COVID-19 pandemic affect PFIN's operations?

PFIN's operations faced disruptions and supply chain challenges due to COVID-19, impacting retail and automotive sales.

What was the status of PFIN's Paycheck Protection Program loan?

PFIN received forgiveness for a $2,929,200 Paycheck Protection Program loan, positively impacting its nine-month net income.

What was the net income reported by PFIN for the nine-month period ended September 30, 2021?

PFIN reported a net income of $1,116,000 for the nine-month period ending September 30, 2021.

Did PFIN experience any revenue growth in its Hy-Tech division?

Yes, PFIN's Hy-Tech division saw a significant 91.3% increase in revenue for Q3 2021.