P&F Industries, Inc. (NASDAQ:PFIN) Q3 2022 Earnings Conference Call November 10, 2022 11:00 AM ET
Company Participants
Richard Goodman – General Counsel
Joseph Molino – Chief Operating Officer & Chief Financial Officer
Richard Horowitz – Chairman, President & Chief Executive Officer
Conference Call Participants
Andrew Shapiro – Lawndale Capital
Operator
Good day and welcome to the Q3 2022 Earnings Call. Today’s conference is being recorded.
At this time, I’d like to turn the conference over to Richard Goodman. Please, go ahead, sir.
Richard Goodman
Thank you, operator. Good morning and welcome to P&F Industries third quarter 2022 conference call. With us today from management are Richard Horowitz, Chairman, President and Chief Executive Officer; and Joseph Molino, Chief Operating Officer and Chief Financial Officer.
Before we get started, I’d like to remind you that any forward-looking statements discussed on today’s call by our management, including those related to the company’s future performance and outlook, are based upon the company’s historical performance and current plans estimates and expectations, which are subject to various risks and uncertainties and could cause the company’s actual results for future periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the company.
These risks factors and uncertainties are described in today’s press release under forward-looking statements, as well as in our most recent SEC filings, which you can find on the company’s website, including our 2021 Annual Report on Form 10-K.
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.
I would also like to remind all participants on this earnings conference call that, as we have been doing for the past several conference calls, with respect to the question-and-answer portion of this call, with respect to the question-and-answer portion of today’s conference call, the length of the questions from any particular stockholder or other caller, together with management’s responses are limited to 20 minutes.
Additionally, please be aware that during the question-and-answer session, management will only answer questions directly related to the company’s results of operations and financial condition relating to the three and nine month periods ended September 30, 2022. We must insist that you adhere to this procedure. Management will not be entertaining any questions that go beyond the scope of the call.
And with that, I would now like to turn the call over to Joseph Molino. Good morning Joe.
Joseph Molino
Thanks Rich. I wanted to point out in the table in yesterday’s press release, the value for the change in operating lease liabilities for the nine-month period ended September 30, 2022, was shown incorrectly as $7.32 million. The correct amount of the change in operating lease liabilities for the nine-month period was actually $703,000. This typographical error did not affect the totals presented within the statement of cash flows. Further, this typographical error did not affect the company’s September 30, 2022, consolidated balance sheets, consolidated statement of operations, and comprehensive loss income or the consolidated statement of shareholders’ equity. A corrected press release was sent out shortly before this call. I will answer any specific questions regarding this typographical error during the Q&A session.
Thank you. With that, I’ll hand it over to Richard. Richard?
Richard Horowitz
Thank you, Rich, and thank you, Joe, and good morning, everybody. Thank you all for joining us this morning to discuss P&F results for the three-month period ended September 30th, 2022.
On the side now, I hope you are all doing well as the country in this world of dealing with economic pricing pressures, ongoing supply chain issues, and the geopolitical crisis in Ukraine. We will pray — we will pray for the peaceful end to this conflict in short order.
I would like to direct your attention to the company’s press release that was released earlier, which includes the company’s September 30th, 2022 balance sheet statement of operations, statements of cash flows and discussions related to the company’s results for the three and nine-month periods ended September 30th, 2022 and the results compared to the same period in 2021.
Further, I wish to highlight a few key factors that impacted our third quarter 2022 results. Firstly, the Jackson Gear business acquisition completed during the first quarter of this year remains a significant factor to our revenue growth. Secondly, our customer and product mix at Florida Pneumatic helped improve their gross margin while negatively impacting gross margin at our high-tech division. Thirdly, ongoing supply chain delays are continuing, unfortunately, not quite to the extent as before, but certainly continuing. And lastly, recent growing economic uncertainty, which we believe is causing and is likely to continue to cause a reduction in consumer spending.
Finally, in order to make a better use of everyone’s time here today, yet be mindful of the purpose of this conference call, I would like to remind you all of the following. First, as we adjusted in the several press previous conference calls and has become our standard practice, we will move directly to a question-and-answer session, cannot restate what is already in this morning’s press release.
And secondly, please be aware that we will only be answering questions directly related to the company’s results of operations and financial condition relating to the third quarter of 2022. 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 finally, please be mindful as Joe — Rich Goodman mentioned of the 20-minute time limit per caller, as previously noted, which we plan to enforce as always. To the extent shareholders or other callers with pertinent questions – excuse me– have multiple questions, please complete your portion of the Q&A session within your 20-minute limit, and then we will move on to the next question here. And with that, we would be happy to answer any pertinent questions that you may have.
Operator, you may open up the lines. Thank you.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] We will now take our first question from Jamie Wyland [ph] from Wyland Management. Please go ahead.
Q –Unidentified Analyst
Hi, fellows. Haven’t been on a call for a while, but I wanted to ask you a couple of questions about the — just the capital allocation strategies at P&F, you have a decent balance sheet and yet you’re declaring special dividends after a quarter where you didn’t make any money, what’s the philosophy in doing a special dividend as opposed to if you’re going to do a dividend, just do a recurring dividend of a nickel per share per quarter.
A – Richard Horowitz
Joe, why don’t you — why don’t you answer that?
A – Joseph Molino
Sure. A lot of factors go into whether the Board wants to return cash to shareholders. Obviously, some of them have to do with the balance sheet. Some of them have to do with our expectations on a go-forward basis, how much we’re borrowing in relation to our availability I think we are — in this quarter, trying to walk a balance between certainly wanting to return money to shareholders, while at the same time, having an eye towards a relatively uncertain economy, while we feel pretty good about our operations.
We’re affected by many things that are outside of our control. So while we felt comfortable with things at the moment, which is why we returned $0.05 a share, I don’t think the Board was quite ready to commit to a quarterly dividend as of yet. And we will review that every quarter. It’s entirely possible that there still could be a relatively weak economy, but we may be comfortable enough with our cash flow situation to still have a quarterly — regular quarterly dividend. But the Board will meet on that in the next quarter and make that decision.
Richard Horowitz
Yes. And I’ll just say on to that, that our focus is returning to our stockholders. And so, that’s what we’re trying to do here. It’s a good thing we’re doing and what we call it, or what some people will consider it to be, not proper for whatever the reasons are, we understand.
But having said all that, we’re just focusing on the quarter and the effects around the world trolling around us all. And we’re just trying to be prudent about it. But we still want to focus on giving back our stockholders, because our cash flow and our balance sheet be able to afford that. Thank you.
A – Joseph Molino
Logically, with the tremendous discount to book, a one-shot dividend doesn’t do much deal, but the ability to — if you’re looking to create value for shareholders longer term, to be able to reduce your share base at an incredible discount to tangible book, it would seem logical, as opposed to special dividends, to be buying back stock as opposed to getting no credit for a special dividend.
Richard Horowitz
All right. We understand. We understand. This, by the way, is the second one. We did one last quarter as well. So — but yes, I — we understand.
Q – Unidentified Analyst
Okay.
Richard Horowitz
And we will review it.
Q – Unidentified Analyst
Jamie, we hear you that, that discussion regarding buybacks is absolutely on the table with the Board. We’re not ignoring that option. But as of right now, we’re at the end of the road, we’re taking, but that is discussed every quarter at the board level. I can promise you that.
Q – Unidentified Analyst
Okay. And as you look forward with the balance sheet that you have, you’re a small company, with a large expenditure to be public, you’ve got to be a larger company, so you’ve got to make acquisitions. What are the areas for you that are going to be most desirable, where you get the most — the biggest bang for the buck, where there are synergies involved? And what kind of multiple of EBITDA are you looking to pay in these areas?
And lastly, with — it’s been kind of a checkered past just to making acquisitions. How do you ensure that moving forward, the acquisitions you do are going to be accretive immediately and steadily as opposed to a little bit more in the cyclicality where sometimes good, sometimes bad?
Richard Horowitz
You asked a lot of questions there, and I not going to be able to answer them, but I’ll tell you what we think. We are always actively looking at acquisitions and we continue to do that. We did one, as you know, earlier this year, the Jackson Gear one. So we’re looking at acquisitions that are pointed in our — that fit with our existing businesses. We’re not looking to go into making things that are not a Ferrari. Not within our sweet spot of what we — and our expertise.
So that’s what we would do. We don’t look to buy things that are in the clothing business or in the office supply business. We’re looking at things directly related to our businesses or ancillary businesses and our customer base. So that’s what we look to do.
We’ve made a few acquisitions in the last couple of years. This is our most recent one. This was a challenging one, as most of them are, because we’re not generally just picking up a company and we’re generally putting them into our divisions, and that’s exactly what we did here as well.
So putting Jackson Gear into Hy-Tech PTG group, it enhanced the revenue and — but the moving parts of moving it into a new factory and getting used to our customers and getting used to the product idiosyncrasies that we have to manufacture, which is slightly different than what we do before, it takes time. And it’s taking a little bit more time than I guess we thought it would take.
But we do expect that by the second quarter of next year, we should be at what we consider a very good return basis for that business. And we continue to look for other companies. I don’t know, Joe, if you want to add anything further to that, or if we’ve answered your question, Jamie, if there’s another part to your question, please take it again.
Q – Unidentified Analyst
Well, I would do the first part. You had mentioned an acceptable return. What is that level?
Richard Horowitz
Well, we look at, at least as good as a return that we get in on our other businesses. So we would look for — I mean, I don’t know if you’re asking this kind of question, but like a 15% net to the bottom line, 10% to 15% kind of a number, that’s what we look to do. If it’s that range, we don’t go further. Joe, you want add anything?
Joseph Molino
Let me just add a little bit. So we’re looking for niche tool companies, areas of the tool business that we’re not currently satisfying that we could add our knowledge and national and international reach. And I think the acquisitions of Jiffy and the acquisitions of AIRCAT a few years ago, the acquisition of UAT in Europe a few years ago, those all fit into that category, and there are other things like that out there. So that’s one side of it.
And then Gears, we see as a very target-rich environment for us. Right now, we’ve been adding to the facility we’ve got. And as Richard said, I think, unfortunately, the squeeze we got caught in here. We made one acquisition in Gears just ahead of a pandemic. And then we made another one, just ahead of a real squeeze in terms of labors here in the US and a dramatic increase in the cost of materials, which has slowed down that integration.
But by our internal analysis, and I’m just parading what Richard said, we feel very comfortable that even with those serious headwinds, we think we’re in the right market, and we now have the right capabilities across a large range of Gears style to hit our stride in Q2. It’s just taking a heck of a lot longer. Nobody foresaw some of those things going on. But we still very much believe in that business. We still very much believe that it’s a target-rich environment nationwide. And I would be expecting, you’ll be seeing more there.
And then, in terms of acquisitions and returns, I would add, what we really like to do is pay a fair multiple to the seller, but add value either in some sort of consolidation or additional reach or additional customer base so that two and two can be five, that is the goal to on paper, pay a fair multiple, but have an effective multiple that’s quite a bit less. That’s the idea.
Q – Unidentified Analyst
Excellent. Thank you, colors.
Richard Horowitz
You’re welcome.
Operator
Thank you. [Operator instructions] Our next question comes from Andrew Shapiro from Lawndale Capital. Please go ahead.
Andrew Shapiro
Hi. Thank you. On the prior call, there was approximately $1.9 million or more than $0.50 a share in a tax refund for the 2021 in ERC employee retention credit coming back to the company over the course of the next 12 months. What’s the current visibility on the timing and receipt of that cash payment?
Richard Horowitz
I’ll let Joe…
Joseph Molino
It’s true the government does not tell us when we’re getting a check.
Richard Horowitz
Right. But we had said in this call. I think we said in our last call, we expected by the first quarter of next year, which is still what we believe is what it is, but the government will send it to us when they send to us. And as you remember, I’m sure we got a check from the government last quarter at some point, I don’t know exactly when, but we didn’t expect to be getting at that early date and it came in earlier. So it’s good. It’s up to the government.
Andrew Shapiro
Okay. Well, that’s a nice amount of money in your release says that you’re spending $1 million for CapEx in the current quarter. This is a little bit more than normal. Can you discuss the benefits in your payback expectations on the growth of this CapEx?
Richard Horowitz
Sure. Yeah. I’ll let – I’ll let Joe in a second. I’ll let Joe answer it. But let me just tell you, during the pandemic, our CapEx were dramatically lower than what is normal. So, I mean, I think if I remember correctly, $400,000 bring a bell with me from last year with 84, but dramatically less. And so now it’s getting back more than normal times, but I’ll let Joe, you go through it, but the two that we’re doing right now to see that nothing almost $1 million are really layups for us and very, very good, but I’ll let Joe give you the details. Go ahead, Joe.
Joseph Molino
So the capital expenditures we’re forecasting at the moment are related to automation and sort of creating capacity in an environment where it has been very difficult to hire employees, skilled machinists both in Cranberry – in and Reno or Carson City. So what we’ve decided to do to supplement our efforts of hiring is getting equipment that can run unattended for hours, if not days at a time that allows machinist to work on other machines or just frankly, add additional throughput that allow us to ship more in a month.
Our issue has been more about ability to get product out the door due to limited resources than orders. Orders have actually been quite solid this year all around. So it’s been more of a struggle, because we haven’t had resources internally and the outside resources we have used to supplement are also strained. So, there are also a lot of good things that are going to come. You asked about a return, our minimum return on any sort of capital expenditures in excess of 30%, and that’s probably after cutting in half the estimates. So we feel very good about the things we’ve got on the table and expect those to generate some benefits for a good chunk of 2023.
Andrew Shapiro
Awesome. Okay. And while still focusing here on the cash and the cash flow generation, I note that, this quarter’s positive EBITDA, I think is the best you’ve had in over two years. And most of that is not necessarily the revenue growth, it’s the margin expansion. So I wanted to get a little bit of better color on this. The first off, in Florida Pneumatic, you talk about a lot of this is due to the improvement in the sales mix being the aerospace line is starting to come back. Can you – and it was in both commercial and defense-related customers. Can you expand on which programs or types in each commercial and defense that are creating the return of some of your aerospace demand?
Richard Horowitz
Sure. Go ahead, Joe.
Joseph Molino
Sure. So as you know, we’ve discussed Boeing as a major customer. But as we’ve said many times, we have commercial and aerospace customers throughout the US and the world, and while Boeing is slightly improved, I’m sure you’re reading the same stuff that we are that they have not increased their monthly production levels for a while. They’re certainly better than they were 12 months ago, but they’re nowhere near where they were prior to the pandemic, and there were recent articles saying, they won’t get to those numbers in 2024 or 2025.
So it has really been a lot of other things, other military projects that were tied into and commercial aviation in general outside of Boeing and Airbus. So those were locked into a lot of those programs. We’ve got great offerings for those programs. So the Jiffy business has improved. Our Industrial business is having a very good year, and those are generally our two highest margin categories. So even a little bit of a falloff in automotive and retail, we can make up for a lot with generation out of industrial and Jiffy.
Andrew Shapiro
Yes, it looks like that. And so as the level of aerospace activity has continued into the current quarter or even picked up even further?
Richard Horowitz
Yes, I think that’s a correct statement.
Joseph Molino
Yes. I mean if you’re — I don’t know what you’re comparing it to, you’re comparing it to last quarter, last year, but we are in a better place Aerospace-wise than we’ve been in a very long time.
Andrew Shapiro
And while these other new initiatives have filled some of the large slack from Boeing, if you were to provide a range of where your aerospace products declined to from the historical pre-737 grounding activity that even preceded with pandemic, and where you’re operating now, where would you say you are in terms of recovery, less than half, more than half, any quarters or even closer in terms of volume shifts and overhead absorption where you were before the plane crashes?
Richard Horowitz
I would think we’re about half that be my guess, I guess, Joe, do you disagree with that?
Joseph Molino
Well, when you say half — back — when you say halfway back to where we were, is that what you mean?
Andrew Shapiro
Yes.
Joseph Molino
Yes. I think absolutely. I think Richard’s spot on, on Boeing, I’d say, half. But I would also say that we have a stronger, larger portfolio of non-Boeing business than before the crashes, and I’m not sure the crash has really had much to do with that. I mean I suppose there was a temporary falloff in some aviation spending, but military has grown steadily.
And as I said, the other commercial areas we sell into, we had no crash. So they probably were down just from air travel being down. And once that rebounded, as everybody knows, has rebounded pretty well, that has come back. So I couldn’t give you a percentage, but Richard’s exactly right about Boeing, but everything else is higher than it was before the pandemic.
Andrew Shapiro
Awesome. Then moving on to the other part of Florida Pneumatic, where there have been some headwinds, when in the quarter did you put in place price increases at Florida Pneumatic? And was it broadly across your product lines and where are they at the beginning and the quarter reflected the full impact, or was it later in Q3?
Richard Horowitz
Actually, it was the price increases were initiated in Q2, but they went to expected various times into — in some of them going into Q3, really, I believe. But yes, into Q3, but they start — we’re focused on it in Q1 and then to implemented them in Q2. I’m pretty sure, I got the timing about that Joe can confirm that. And — but at this point, we’re pretty — we are full boat on all those price increases. Okay, right. You want to go further Joe?
Joseph Molino
Yes, Richard is right. We started in April, but they got layered in. We had contractual commitments in some cases and inventory that had to be run through. So April through July, but I think Q3 is, I would say, almost 100% of the increases were in place.
Andrew Shapiro
Okay. And have you been able to maintain market share or have to give up some customers?
Joseph Molino
We made a cut — go ahead, Richard.
Richard Horowitz
No. Okay, you’re going to say. Go ahead.
Joseph Molino
We didn’t lose any customers. I would think — I would say this, that while our distribution channels are intact in the automotive area, I would say we gave up some unit sales, but I think our overall contribution is the same or it’s not higher.
Andrew Shapiro
Okay. And did your price increases go through at Home Depot? And to what do you attribute the decline in their reordering from its big initial stocking of your new products, which occurred in Q2. Are these products selling through? And is Home Depot just adjusting the pace from the front-loaded above normal initial shipment, or is there a loss of product line or other things going on here and did they get it with the price increase?
Richard Horowitz
No. It’s — Joe can extend on it, but it’s not it’s not anything to do with losing any products, nothing like that — nothing like that. It’s just we’ve been told and me as a vendor or probably the last to know all these things, it’s hard to believe, but we are. But they’re kind of saying that they’re redoing their inventory there. They have — they overstock into supply chain delays and stuff like that and now they’re readjusting that. That’s basically what they can call to us. Joe, my correct about me, I’m correct, but anything else…
Joseph Molino
You definitely correct. There’s always some, sort of, adjustments after a launch. I do also think that there is some softness in consumer demand because we’re seeing it both in the two areas where an end user buys our tools. An auto tech buys our tools directly for themselves. And a person walking into Home Depot buys our tools directly. Both those areas are down, whereas the more industrial stuff that’s being used by a corporation seems to be doing just fine. So I think there’s a little bit of both going on. It’s a little hard to tease that out at the moment. I think we’ll know more about that as we get into Q4.
Andrew Shapiro
Sure. And then let’s move on to High Tech, where the big bounce nicely occurred. Regarding your increased shipments to a major OEM customer, can you expand on what kind of product or use case these products are for? And whether this level of activity has continued into the current quarter?
Richard Horowitz
Yes, go ahead, Joe. But the answer is, yes, and yes. That customer, Joe will give you the details. But if that customer is continuing to order at a reasonably good pace still. Go ahead, Joe.
Richard Horowitz
Yes. It’s a country we’ve had for some number of years. And we’ve worked very closely with them. I don’t want to say codeveloping, but we do work very closely with their engineering team on a product that’s specific to them and their needs, and they’ve got a wide range of channels for that product, and I believe, worldwide. So they’ve got a pretty far — a big reach, and they’re doing really well with it. And we’re happy to be along for the ride and continue to work with them. And we’re anticipating that continued relationship and we think some growth for next year and beyond. So we feel really good about it. And I don’t know what else to say. We’re in a good place there, we think.
Richard Horowitz
Yes. I mean we’re — it’s a customer for quite a while now. They have a very good management team there. The principal guy is very on top of his business, and he’s grown dramatically and he’s and we’re happy to be a vendor to him, and we’re doing our very best to keep them satisfied.
Andrew Shapiro
Okay. Beyond this major customer has the OEM Engineered Solutions segment encountered additional success? And are there any particular areas, industries, products worthy of a call out an elaboration?
Richard Horowitz
Go ahead, Joe.
Joseph Molino
Yes, I don’t know. I don’t think there’s anything particularly new there that I can think of. I mean we continue to satisfy niche opportunities, but I wouldn’t say there’s any one in particular right now. That doesn’t mean that one couldn’t come on. I think we’ve recently begun a deep dive into that business and are looking for maybe the best places to make bets. So we might have more to say about that in future quarters. But right now, we’re taking opportunities as they come.
Richard Goodman
Hey, Andrew, I don’t think to interrupt you, but now you have more questions, but I’m just pointing out to you that 5 more minutes basically. Okay. Please go.
Andrew Shapiro
Yes, thanks. Regarding the weakness in certain industrial markets and customers at ATP, are you seeing that continue into this quarter? And what are the factors that are providing pricing pressure from offshore suppliers here? Is it just a strong dollar or and what steps are you taking to better compete?
Richard Horowitz
I don’t really — I don’t know if I understand the question. You understand the question, Joe?
Joseph Molino
Well, I think part of the issue is there definitely have been some cheaper imported industrial tools that are affecting that business. So that is absolutely a factor. I think there’s also — even though the price of oil is so high, what we call the turnaround and shutdown business hasn’t been nearly as robust as it would be, if you rewound the clock five years, and this was the price of oil, I think you would just be seeing more activity. And I think some of that could be just related to there being a move away to other sources of energy. I mean I think it’s — I think oil and gas has peaked, especially oil exploration. So I think that’s a little bit of it as well. Other than that, general economic factors, I can’t really think of anything else.
Andrew Shapiro
So ATP is more of an oil and gas used product?
Joseph Molino
No, it’s not. I mean, it’s part of the business. It’s part of the portfolio. I always ask the question of what percentage of our business it is. It might be 20% of the business now. It was probably 40%, five years ago.
Andrew Shapiro
Okay. And so what steps are you taking to better compete regarding the pricing pressure from offshore suppliers and the other weaknesses here? Are you just emphasizing gears and other things instead?
Richard Horowitz
Yeah. We’re emphasizing the other parts of the business much more, because it’s a
dog eat dog business for the most part. And so not that we’re not doing it still, because we are, but it’s just a much — the priorities are more fruitful for us in other areas, say it that way.
Andrew Shapiro
Okay. And then regarding the Gears acquisition and the Power Transmission Group, on the last call, you thought the opportunity for Jackson Gears and its synergies was still in transition, but we’re — it was a great opportunity and that there’d be tangible progress in the quarter just completed with most of the benefits put in place over the course of this current Q4. This quarter’s release highlighted under absorption of manufacturing overhead costs that would continue into next year. Was progress made during this last quarter? And is progress continuing to be made at least?
Richard Horowitz
The answer is yes, progress has been made and latest not at the rate and the level that we expect. Joe, do you want to go further into that?
Joseph Molino
Yeah. I mean it’s — as I alluded to earlier, we simultaneously with this integration, we are seeing a quite a bit of turnover. There is a bidding war for machinists in Pennsylvania. It has been a struggle to add the people we needed. We had had some people that we brought on, right in front of the activities, we lost some of them. And we’ve got new people in there that require training. So we lost some momentum.
In addition, a number of these parts have to be processed on the outside, because we don’t do everything. For example, we don’t do heat treating and some grinding. So those firms that help out with that are slot. And so they’re taking three and four times what it would normally take to get products back to us. And that doesn’t mean a couple of days; I mean things get delayed by almost months. So, we have it with the production schedule.
And then lastly, since a year ago and even two years ago, the cost of metal is dramatically higher than it was and that has hurt us a little bit. Having said, all that we have —
Andrew Shapiro
Given that timing…
Joseph Molino
Yeah. A nice order book and as I said, by Q2, we think we’re going to be in a much better place.
Andrew Shapiro
I have one more question, if you grant me one more question here. It’s…
Joseph Molino
All right. Go ahead. Sure.
Andrew Shapiro
So can you expand on the steps and the timing to then address these issues? And more importantly, kind of what is the margin pickup or the unabsorbed cost amount to be remediated here? Is it meaningful that we would — we’d see it, when you report a quarter when this is behind us?
Richard Horowitz
Go ahead, Joe.
Joseph Molino
Yeah. I’m feeling fairly confident that unless there’s a dramatic issue with the customer base or demand in Q2, on a run rate basis, you will see a much stronger PTG than you saw in 2023. And as I said, we’ve got some capital expenditures that are going to address some of the strains on the staff.
And I think by then, we’ll probably sort it out the customer base a little bit more. We took — we had a big dump of new customers from the acquisition. I think some of them are much more attractive than others. So there’s going to be a little bit of culling of the herd there and sticking with customers where we have a greater degree of confidence in generating profits.
Richard Horowitz
Its year-on-year, you meant 2021, it supposed to 22.
Joseph Molino
I’m sorry, Richard you heard to 23%, I mean 21. Okay. So hopefully, that answers your question.
Andrew Shapiro
Yes. And I’ll just…
Joseph Molino
I also add another point to your question, but I’ll just tell you that the change that was made at the top of iTEC, we’re very, very satisfied with that with our leadership, he’s doing a remarkably good job for us. We’re very, very happy with that.
Andrew Shapiro
Okay. Great thank you.
Joseph Molino
Thank you for your time management and your interest.
Operator
Thank you. Ladies and gentlemen, there are currently no further questions in the queue. [Operator Instructions]
Richard Goodman
Thank you all so much for your time today. We wish you and your families a good holiday season. And we look forward to speaking to you with our year-end results in the early part of next year, in the first quarter. Thank you all. And stay well and say.
Operator
Thank you. This concludes today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.
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