Park Aerospace Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 9, 2024

There are 3 speakers on the call.

Operator

Good afternoon. My name is Camilla, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. 3rd Quarter Fiscal Year 20 24 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. Fiscal 2020. At this time, I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Fiscal Year.

Operator

Mr. Shore, you may begin your conference.

Speaker 1

Thank you, operator. This is Brian. Welcome everybody and I want to introduce Matt of course. With us our CFO as usual, Matt Farbaut. And also we'd like to take this opportunity to wish you and your families a very Happy New Year.

Speaker 1

All the best to you fiscal 2020 4, it is right? Yes. We just announced our Q3 earnings, I guess, maybe 15 minutes ago. So you want to pick that up and also in the earnings announcement there is instructions as to how you would access the presentation The presentation is pretty long. Sorry about that.

Speaker 1

I really was thinking I was going to this one, I'm going to make it shorter and it ends up being longer. It's hard for us or at least for me because it just seems like Sometimes there are important things to cover. We don't do the sound bites. We don't hire IR for it to do a little clever kind of slick things. And I don't know why you'd want that anyway because I would think you'd want to hear from management.

Speaker 1

So we're not as polished, it takes a little bit longer. It'd probably take about 45 minutes fiscal 2019. So just be advised, we might skim through some of the items that we've gone through Previously, there are some items in this presentation, which were in the Q2 presentation as well. So that might help us a little bit. Fiscal Q3.

Speaker 1

Before we get started, I just really want to give a shout out to Donna because Q3 is a bear for us because it's just our holidays are Kind of a mess. We not just a presentation, we're closing our financials, so Matt as well. But Donna helps me do all PowerPoint stuff. I don't I'm not even dangerous in PowerPoint. I can't do it at all.

Speaker 1

So every Q3, she's working through holidays. Before we get started, note again, it's our 70th year in business. It will be our 70th fiscal 'three is March 31. So I guess what is that a couple of months off. It will be 70 years if we make it that far.

Speaker 1

When we get going, Slide 2 is our forward looking disclaimer language, so we're not going to go through it. Please call us if you have any questions or ask let us know if you have any questions. Slide 3, table of contents. First thing is the investor presentation. Appendix 1 supplementary financial info, which we're not going to go through either, but if you have any questions about it, please let us know.

Speaker 1

Let's go on to Slide 4, take a little bit longer. So Q3, Let's go through it. Sales $11,000,000 When we compare things to Q2, dollars 11,000,000 639 So that's a fairly low number in terms of sales, even lower than Q2, which was off. And I think you Probably have a good understanding of Q2 and we'll go through the explanation of Q3 as well. And look at the margins, I highlighted we highlighted the fiscal 2019, both the gross margins and EBITDA margins.

Speaker 1

So you can see the comparisons to Q2, which are not really favorable, but As I think we tell you a lot, we don't like it when we share gross margins below 30%. So they're certainly below 30% this quarter and our EBITDA margins are not really that desirable for us anyway either. Our observations and thoughts about our Q3, so what's going on here? Well, the MRAS inventory burn down, fiscal 2019, which we talked about a great length in our Q2 call that continued through Q3. And we predicted when we did our Q2 call, we told you we predicted that.

Speaker 1

Is that MRAS inventory burn down expected to continue into Q4? No, it's not. It's over and we'll get into that In the presentation, but it's no more burn down. We will discuss the IMRS inventory burn down in greater detail throughout the presentation. Let's go to Slide 5.

Speaker 1

Well, let's talk about the non GA aviation sales fiscal year 2019. We talked a lot about GA Aviation. Non GA Aviation sales were only $7,500,000 in Q3 and that compared to 9 point $4,000,000 in both Q1 and Q2, so that was off as well. So although there almost always will be some degree of quarter to quarter variability in our business, The trend is actually quite good for non GA vision sales, so we feel pretty encouraged about that. But what is the reason for or other reasons for fiscal year 2020.

Speaker 1

There are numerous reasons, but for numerous reasons the programs we're on will be active in one quarter and may be inactive in another quarter. We really have no control over that. There's very little we can do to control the timing of when programs were that we are on will be active or inactive and it would really be a waste of our time to even try to do that and exercise in futility as we say here. But at Park, The key thing is we focus our energy and efforts on getting on new programs, which we believe will be supportive of our long term objectives Rather than attempting to drag control, the timing of programs already on. So let's keep going, Slide 6.

Speaker 1

But nevertheless, this quarter to quarter variability does come with less than optimal visibility often. And it does require us at Parq fiscal 2020, we're very agile and fast on our feet with our supply chain, with our inventory and our production management activities. So were there any new obstacles to completing Sales in Q3. Yes, there were actually and we'll get to that in a minute. But let's now talk about the bottom line.

Speaker 1

Can we talk about the top line? Why were the margins in Q3 lower than Q2? We already showed you the comparisons. Well, there's a few reasons to less favorable there's a less fiscal year 2020. We expect favorable sales mix in Q3 compared to Q2.

Speaker 1

Q2, the sales mix actually was quite good, Q3 not But as explained above, we have little to no control over which programs are active and which programs are inactive on a quarter basis. That's kind of rolling the dice a little bit if you look at it short term. With the higher margin programs be active in a quarter or less active That we have almost no control over. Again, our objective is to get on more programs. The ones that we think are good programs, the margin programs, better margin programs and the timing is up fiscal year 2019.

Speaker 1

The second item was lower sales. We talked about in Q2, so that affects our bottom line in Q low sales in Q3 compared to Q2 that affects our bottom line of course. And here's a big one. Even though we fully anticipated that Q3 sales were going to be light compared to Q2, we intentionally ramped up our costs in Q3 to meet the reduction requirements of expected key program ramp up. So that was something we decided that was intentional fiscal 2019.

Speaker 1

And we'll talk about that number additional again throughout the presentation. So why don't we go on to Slide 7. Yes, we saw that freight train coming. That's an analogy we use in our Q2 presentation. The freight train coming, meaning the program ramp ups, fiscal 2020.

Speaker 1

I want to make sure we were ready. Although ramping up our cost took some conviction and maybe some guts a little bit anyway. It's hard when you see it's not going to be a good sale sales wise to ramp up your costs. It turns out, we don't know for sure, no guarantee, but We clearly were right with the benefit of hindsight to do what we did in ramping our costs in Q3 and we'll explain that as we go through the presentation. So It was a good move on our part, I would say, to do what we did.

Speaker 1

Other considerations related to Q3, how things going with supply chain staffing, We talked about this a lot. You might be tired of hearing about it, but we're sometimes tired of dealing with it. Supply chain staffing challenges continue, But they seem to be improving to some extent or maybe there's more that we have become more effective with dealing with them. Now, I just want to point out, we're not talking about Supply chain issues for the whole industry. We're talking about our supply chain.

Speaker 1

The whole industry we'll talk about later on because that's probably more of a factor Supply Chain constraints. International Freight, well, that's a little bit of a different story. There's a war in the Middle East, Which occurred after the end of our after the end of Q2, I guess during the 1st part of Q3, Which we didn't see coming, but it's causing serious disruption and challenges for international freight, disrupting sorry, Slide 8, disrupting shipments Customers in the Mideast and Asia. Yes, we got customers in Turkey and Israel, important customers. So you can only imagine what kind of chaos that is.

Speaker 1

And then we also have customers in Asia where there's not a war in Asia, not yet anyway, and hopefully it'll stay that way. But nevertheless, The sea freight goes through those through the middle of it's through the it's supposed to go through the Mideast. I guess now it's going through the what is it the hornets of Africa, it's way out of the way. So that's not a lot of fun. Total mid shipments in Q3, about 560,000.

Speaker 1

I don't have it in front of me, but I think $220,000,000 in Q2. So in other words, Q2 will really get much better, but we have a big setback in Q3 and that's almost all related to international freight disruptions. So there you go. Our margins also our margins continue to be affected by inflation. I know inflation is supposed to be all gone, but we're not I don't buy that.

Speaker 1

And the cost and cost related operating our recently commissioned new plant in fiscal year 2020. This is all planned and expected, but obviously you don't turn a plant on and you're at full capacity. It's not how it works. Let's go on to fiscal year 2019. Slide 9.

Speaker 1

Okay. This is our historical fiscal year results. And for perspective mostly, let's talk about it a minute. Normally, we don't Look at the sales in 2017, 2018, 2019, 2020, like it kept going up like $10,000,000 $31,000,000 $40,000,000 $51,000,000 $51,000,000 $51,000,000 $61,000,000 $51,000,000 $60,000,000 Really nice. And then what happened is this little thing of pandemic.

Speaker 1

So sales were really badly affected in 2021. Fiscal 2020. In 2022, 2023 and 2024, if you look at our forecast on Slide 36, 2024 is going to be our forecast is something like $23,000,000 like $55,000,000 top line, dollars 11,500,000 EBITDA. So we got 3 years where We just have been able to break out the pandemic, the disease part is mostly over, but boy did we screw up fiscal year 2019. The global economy, supply chain, staffing, we have supposedly full employment, but so many people left the workforce.

Speaker 1

I don't know how that problem gets solved so easily. You probably know better than I do, Vishu. But at least from my perspective, it seems like a problem that may not get totally solved so easily. But anyway, if you look at our top line numbers, you can kind of see the pattern there. Fiscal year 2019.

Speaker 1

Now we're hoping and we have recent hope that we're going to start to move that we're going to start to have that growth dynamic kick in again fiscal year, return to the growth dynamic. But let's go ahead and let's talk about let's go on to Slide 10. Okay. Fiscal year. Quickly in this one, we always cover our balance sheet and dividend stuff.

Speaker 1

So we got 0 long term debt, $74,000,000 of cash we reported. But don't forget, there's $9,300,000 of remaining transition tax installment payments payable through June 25 that relates to repatriation tax. I think it was Based on the Trump's tax law, which was very good for Park, but nevertheless we have some installment payments. So you can think about how you like, but we kind of think about that as almost fiscal year 2020. Like we owe that money.

Speaker 1

So when we think of our cash, we think well, we still got to give $9,300,000 of fiscal 2020. These transition tax installment payments to the government, that's in addition to our regular tax payments, which we're not talking about. Dividend, yes, you know about our dividend. We paid a lot of dividends, paying for 8 years, dollars 588,000,000 since fiscal 2019. And like I always like to say, that's a hell lot of money for a little company like Parq.

Speaker 1

Going to Slide 11. This is just kind of a reminder, fiscal 2019. As you know, on May 23, 2022, the Board authorized a buyback of 1,500,000 shares. Fiscal 2020. We've purchased about 221,000 shares so far.

Speaker 1

It looks like we have about, was it 1,279 1,000 shares still available to be purchased under your authorization. We're not saying we're going to buy stock or not, but we just want fiscal 2019. Remind you that the authorization is out there, just you remember that. Let's go on to Slide 12. Okay.

Speaker 1

Every quarter we tell you about our fiscal 2019. This is a slide that Donna prepared as we do a little nice picture of one of the programs that these customers run. Hey, Aerospace. So they're a contractor for Airjet and the Airjet relates to the PAC-three missile. We talk about that a lot.

Speaker 1

Aerospheres, they're contractor for Israeli aircraft and that relates to the G280. So, that's a Gulfstream airplane, Gulfstream has some contract with Israeli Aircraft under which Israeli Aircraft produces the G280 airplane. Kratos, you know all about Kratos, We talk about almost I think every quarter featuring this Mako unmanned tactical drone, Middle River, yes, every quarter of course, 7478, that's I think our favorite airplane. And then, Nordan, that's the Global 7,500, they make some components for the engines for this Global 7,500 with our materials. Let's go on to the next slide, Slide 13.

Speaker 1

My pie charts, I always like these. I don't know if they are useful to you, but I kind of think that Kelly's had messages in them. And if you look at the 1st 9 months of this year, you So you had commercial a little bit off as compared to the prior 2 years and that would be based upon what? That would be that burn down fiscal 2020 4st 9 month pie chart. Let's go on to Slide 14.

Speaker 1

So Park loves niche military aerospace programs. This is Elena's project every quarter Come up with some kind of fun interesting and cool examples of military programs run. The pie chart is interesting. Let's talk about that for a second. Rock and nozzles, drones, structures, those sorry, Those are niche markets for us, but even the structures we consider to be a niche market.

Speaker 1

Quickly, the SpaceX fiscal 2020. So Falcon 9 launcher with Dragon spacecraft, materials and ablatives, the Northrop Grumman E-2D, that's parts and materials And both the Black Hawk and the Lockheed G5, 2 very different kind of aircraft, but those are multiple materials. And the MK56 vertical launch system that's for the Navy and those are blade of materials. Let's go on to Slide 15. So let's talk a little bit about trends in the aerospace industry.

Speaker 1

Commercial aerospace markets, domestic air travel That's good news for single aisle like the A320neo aircraft. International travel is reported to be approaching pre fiscal 2019. Pandemic levels, also very good news for long held wide bodies like a Boeing 777XC. I'm a little biased because I keep talking about programs we're on. Fiscal 2019.

Speaker 1

Not surprisingly demand for commercial aircraft is very high. Supply chain and labor shortage challenges continue to be the biggest headwind for the commercial Aircraft Industry. But there are recent reports of supply chain stabilization and improvement. But I'll tell you what, we're not going to believe events. It seems like it's inconsistent.

Speaker 1

Some places may be better, some places may be not better. But Notwithstanding these ongoing supply chain constraints, many now believe that 2024 will be the year the commercial aircraft industry Breaks out and ramps up production in earnest. Beginning of every year, calendar year is always the prognosticators and the crews and stuff that have or pipe the reports. But I've heard a number of them recently, aerospace analyst types are saying that this year may be the year that commercial aircraft industry really breaks out and kind of gets past the supply chain constraints. We'll see about that.

Speaker 1

But I think there might be some reason to be optimistic. Let's talk about that. Let's go to Slide 16. Fiscal year 2020. The recent impressive ramp up of A320neo family aircraft deliveries.

Speaker 1

Now this is not prognostication. These are facts. So we'll get to that on Slide 20 2022 regarding that delivery ramp up is supportive of that view. Now she would use the A320neo family aircraft deliveries fiscal 2019. As a proxy for commercial aircraft industry, I don't know, but considering that that program is expected to be the largest commercial aircraft program in the history of the universe, maybe we should consider using as a proxy.

Speaker 1

Now military markets, proxy for the industry breaking out, let's call it, the commercial aircraft industry. Military markets, So the global demand for military and defense hardware including missile defense systems such as a factory missile, fiscal 2018. We kind of bias we talked about the programs we're on, quite high and elevated by the wars, extreme tensions in the globe. Let's go on to Slide 17. Also high level of interest in unmanned and potentially autonomous systems such as the Kratos Valkyrie.

Speaker 1

What's going on here? I'm not fiscal year. I'm just wondering, you got missiles, missile offense, drones, maybe this is to avoid boots on the ground so we could do our wars without getting people in the middle of them. I know it's kind of a cynical way to look at it, but you probably have a more enlightened opinion than I do. The markets for military and defense hardware are also affected and in some cases constrained By international political and budgetary factors, we read about that stuff every day.

Speaker 1

And in Some cases supply chain and labor constraints continue to limit the ability of military defense OEMs to meet the demand, the market demand for the hardware. A little picture of the Valkyrie here, which is nice. And the last item on this slide, we're on Slide 17, December 17, 2023 was the 120th anniversary of the Wright Brothers' 1st powered flight. So happy anniversary, Aerospace Industries. Let's go on to Slide 18.

Speaker 1

Okay, you're familiar with this slide if you've listened to other presentations. This is we go through this every 5th quarter. And this is just kind of give you context because GE Aviation programs are really important and we talk about them. This is just background. We're not going to go through the programs.

Speaker 1

We have a firm pricing LTA through 2029 with Middle River Aerostructure Systems, a sub of ST Engineering Aerospace. What is that? I don't get that. All these programs are GE Aviation programs, so what's going on here? Well, what's going on here is when we got on these programs, Middle River MRAS, which is old Martin and Glen Martin Company in Baltimore, Lockheed Martin.

Speaker 1

Anyway, they were part of GE Aviation. So when we got out of these programs, they're Park GE Aviation. I don't remember about 4 or 5 years ago, I'm not sure I remember GE Aviation sold MRAS 15% to ST Engineering Aerospace, which is a large Singapore aerospace company, but we're still supplying it to those GE Aviation programs. Actually the redundant factory, that was an agreement when you reached with GE Aviation to build that a redundant factory. They wanted that redundancy because they're kind of betting the farm with us being sole source on these programs.

Speaker 1

So I won't go through the programs. Fiscal 2019. If you have any questions about them, let me know. Let's go on to Slide 19 on the first two items. Again, programs, we're not going to go through them.

Speaker 1

Just let me know or Let us know if you have any questions. 3rd bullet arrow item, MRIS Qualib 3 Park proprietary film adhesive formulation product That's new. That's interesting and pretty great for Park. Park MRES LTA through 2029 fiscal year 2019. We have a composite bond and metal bond that's really great for Park.

Speaker 1

LIFO program agreement requested by MRAS and SDE. They both said, yes, 29 is nice, but we need a commitment for longer than that. So the agreement is in progress. What's that agreement worth to Park? I don't know, you tell me.

Speaker 1

You might what is that? Is it Slide 38 that has the let me see if that's a slide. No, 30, yes, 38, it has the analysis of the revenues, annual revenues for the GE Aviation programs type of program, I don't know, you tell me, 2,045, 2,050 of these airplane programs are just starting. So We're so lucky, so fortunate. The programs are on.

Speaker 1

Our new programs are going to go a long, long, long, long time. Very lucky. The 747 that program ended, so That's sad, but the other programs we're on now have a long way to run. Slide 20. Okay, we're going to go through some of the programs.

Speaker 1

So try to skip I guess we covered every quarter, let's cover the high points. First of all, A320neo, that's the big dog, that's the big one. That includes this whole A320neo family. Huge backlog, huge, 6,750 rear airplanes. That's backlog.

Speaker 1

That doesn't include all the airplanes Airbus continues to say they're going to be at 75 per month production and deliveries in 2026. They're going to make it there? Let's go on to Slide 21. Let's think about that. So how is Airbus doing so far with their planned A320neo family Aircraft production ramp up pretty well actually.

Speaker 1

According to reports, 73 deliveries in December. Well, that's a lot. An average of $57 per month in Q4 of 2023. That's a lot. 563 total in 2, 3 sorry, calendar year 2023.

Speaker 1

That's a lot. That's an average of 47 per month in calendar year 2023. Fiscal year 2020. Let's get some perspective. What's the history 2018?

Speaker 1

You can see what's going on here? They're ramping up in the pandemic. Fiscal year 2019. Let's talk about let me talk about per month. So $18.32 per month, dollars 19.47 per month and then oops, we got the pandemic 20,036, 20 1, 30 8 and 20 2, 40 3.

Speaker 1

Everybody said they wanted to maintain 40 through the pandemic. They almost got there a little bit light in 2021, but they did keep some production going, good for them. Now Let's take a look at something else. So it was 563 in 2023, 561 2016 was their big year before the pandemic. So we just eked out in 2023, 561, which is a big year.

Speaker 1

So that kind of says things are getting past the pandemic. Notwithstanding all supply chain stuff and everything else, it's holding things back. And the other thing you want to look at is that it wasn't level at 47 per month through calendar 23 in December, 57 in the last quarter. So I would say, Yes, during the year, things were moving up and we'll have to see how things work out as we go forward. I think there's Let's go on to Slide 22.

Speaker 1

So for the first in 2023, counter 23 for the first time Since the beginning of the pandemic, Airbus was able to return to those A320neo family aircraft production and delivery rates fiscal 2020. To those pre pandemic rates, a very in high what do you call it, italics, I guess, a very key milestone and accomplishment for Airbus, Good for them. Now this is what I was thinking about. There could be monthly ups and downs. There will be monthly ups and downs for A320neo aircraft family deliveries.

Speaker 1

But it's quite apparent, at least to me anyway, that ramp is real and not going away. I wouldn't be surprised in the 1st couple of months fiscal 2020. I don't know, I don't understand information. I'm just speculating. It could be a little light, but that's how it often is because they Clearly based upon the huge backlog though, Airbus would be producing These aircraft at rate of 75 per month already if not for supply chain constraints.

Speaker 1

And by the way, just FYI, According to reports, Airbus booked 257 new orders in December of 'twenty three. That's a lot of new orders. They booked an unheard of 1693 new A320 family aircraft orders in 2023. Those are just incredible numbers. We're so fortunate to be on that program.

Speaker 1

Just luck really, I guess. Slide 23, what about those engines though for the 2020 Neo. Boy, we lead it with churn life, I'll tell you. So remember that there are 2 approved engines for the A320neos, the LEAP 1A and a Pratt 15 100 gs GTF engine and we only supply into the LEAP-1A and not the Pratt. This is I was talking about lead a charmed life, Because LEAP-1A market share has been hovering about 60% for the last couple of years, let's go on to Slide 24, then what happened?

Speaker 1

Fiscal 2020. Fiscal 2020. According to this December 23 edition of Aero Engineers, that's our bible for huge amount of data in this monthly publication. CFM LEAF 1A market share firm orders A320neo aircraft only 65.6% as of October 31. Well, how the heck did that happen?

Speaker 1

The thing is there's just so much balance in the market share with over 12,000 firm engine orders between the 2 engines. And you were 60%, how the heck do you get to 65.6% in just a couple of months? It's incredible. At the delivery rate of 75 A3 Neo family aircraft per month, That 65.6 percent market share translates into 1181 LEAP 1A engines per year. What's it worth to Park?

Speaker 1

Well, we'll talk about it on Slide 38. We'll get there. Slide 25, So there are also currently 8,150 firm LEAP 1A engine orders. That's a lot of engines. What are those orders worth to Park?

Speaker 1

Well, looking at Slide 38, you probably say about $250,000,000 now. There's a couple of things that that's going to be deliveries past 2029, so that assumes that we're still in the program after that. My guess is we will be and I will also guess The pricing might go up a little bit after 2,030. So but just kind of round Now if you want to talk about life of programs at 2,045, 2,050, you can do that math. I'm not able to go there.

Speaker 1

So what happened? Why did the market share affirm engine orders shift so abruptly and dramatically in favor of the LEAP-1A engine? So we talked about this last time. We won't dwell on it too much. This is all in the news.

Speaker 1

You can read about it yourself. Serious issues with the Pratt 1100 gs engine. These have been extensively reported, so we're not going to cover them here again. So why don't we just go on to Slide 26. The top item is actually a new one, so we'll talk about that.

Speaker 1

FAA just published new proposed rule in December 11, 23, Regarding inspection of additional Pratt 1100 gs parts, which could be affected by the powder metal issues. That's kind of new news. What are the full implications? Hard to say, will lead to further market share gains for ALLETE-1A. I don't know, what do you think?

Speaker 1

Meanwhile, just meanwhile, CFM is playing for induced upgraded components, LEAP-1A engine. You see what's going on here, is really struggling. You have to feel sorry for them. It's a really difficult problem. And on the other hand, LEAP is kind of making improvements to their engine to actually improve durability.

Speaker 1

Let's go on to Slide 27, please. We're continuing here on the update. So just still on that A320 family, the A320 XLR variant, supposed to be entered service Q2 of 2024, that's pretty much around the corner. That's really nice. That's exciting for Park.

Speaker 1

That's good news. So Come back 919. Let's just skip down to the last couple of items. They recently made the first Flight outside Mainland China and we got to put in for rent as Hong Kong. So I don't think unless you're that considered Mainland China, I think it might be, But anyway, it's news.

Speaker 1

These come back airplanes are thought of as mostly for the Chinese domestic market. They recently unveiled a fixed and shortened variant of the airplane, at least plans to produce them. So that's really exciting. So COMAC is not sitting still. They're doing more development work with this aircraft type.

Speaker 1

Let's go on to 28, another Comac, Chinese Comac aircraft, which is a regional jet. And last check item, Comek originally delivered its first 2 ARJ-twenty one converted freighter aircraft, which is nice. And Comex held this as a solid step forward for China's aerospace sector. Any history buffs, does that sound like anything to you? You You ever hear of the Great Leap Forward?

Speaker 1

Do you think that's a coincidence? I don't know. I have no idea. I just when I read that, I thought, well, it kind of sounds like a Great Leap Forward. If you know about that, you might want to look it up.

Speaker 1

Let's go on to Slide 29. So the 777X aircraft, this is exciting program for Parq and it's starting to actually happen. We expect to ship approximately $2,000,000 of materials for this program in calendar 24. Boeing said that it will be certified in 2025. They're building ahead of course.

Speaker 1

And this is important with the market. I'll likely continue to do that for a long, long time. Why is that? Because nobody's planning anything to compete against it. It could be a significant program for Park.

Speaker 1

And then lastly, we always talk about the legendary Boeing 747. Thank goodness for spares. Let's go on to Slide 30. So we have GE Aviation Jet Engine program sales history and the forecast estimate. So, the sales history about look at on the right hand column, fiscal Q1, dollars 6,200,000 Q2, dollars 3,100,000 Q3, dollars 4,150,000 So Q2 and Q3 were those burn down quarters.

Speaker 1

Q4, we got booked $7,500,000 So much for the burn down, I would say, $7,500,000 Go look through the quarters. Is there any $7,500,000 quarters? I don't I think there were a couple before the pandemic that were at that level maybe 2 quarters, but you have to go back in a little further history. So goodbye, MRAS inventory burned down. I would say that's relatively good news for Park.

Speaker 1

And then we predicted this, but we'll get to that in a minute, I guess. Slide 31, The sharp drop offs in Q2 and Q3, GE Aviation Jet Engine Program Sales, It's all about that burn down. The MRAS calendar year 23 build plan, that's their build plan not ours, Translate into about $23,000,000 of Park Aviation Program sales. We covered this last time. So what happened?

Speaker 1

Why were our sales less than that in Q3 Q2 and Q3? Well, we already told you the That's in highlight at the bottom, the burn down, explains the whole thing. Let's go on to Slide 32. So will this kind of disruptive inventory burn down happen again? I think so.

Speaker 1

It likely will happen before it will happen again. There may be some like will be some degree of quarter to quarter volatility in our GE program sales because of inventory management challenges, Maybe somewhat of a rollercoaster ride from time to time. So we talked about this at some length in Q2, just talked about the aerospace industry in general, How it has this propensity to have inventory management challenges And we can't do anything about that. We decide to be a supplier into that industry, we have to work fiscal year. We can complain about all we want, but total waste of time.

Speaker 1

We're happy to ride the quarter to quarter key program sales roller coaster and face the challenge fiscal 2019. Because to us, the overridingly important consideration is the long term outlook for the GE program sales

Speaker 2

fiscal 2019. But the

Speaker 1

roller coaster ride does this volatility does place additional fiscal year 2020. We've got to be able to respond quickly. We've got to be able to respond quickly. And that's kind of our calling card at Park. That's what we'd like to do.

Speaker 1

Slide 33, We're still in the burn down. Sorry, it's such a big deal and we spend a lot of time on it. But where are we going with the burn down? Well, in our Q2 presentation, we predicted that the burn down would likely be completed in Q3 as that the Park inventory carried by MRAS will be normalized by Q3. Based upon our bookings for Q4, that prediction was obviously correct.

Speaker 1

So we guessed right in that one. Fiscal 2020. One more consideration regarding inventory management. As a general matter, it's very important to avoid over correcting and overshooting as doing so can create fiscal year 2020. Now in our Q2 presentation, we indicated this was a concern of ours.

Speaker 1

Fiscal 2020. And if our concern proved to be well founded, it could result in a significant spike in demand in Q4 and into fiscal 2025. We told you that in our Q2 call. On top of it, let's go to 34. That based upon our GE Aviation program booking for Q4.

Speaker 1

That concern was obviously well founded. Our decision to ramp up our costs in Q3 fiscal year 2020. In order to be prepared for Q4 and spike in demand, it's obviously the right decision for Park. Funny, I remember a few months ago, Mark said to me that he's got nervous. And I said, what do you mean?

Speaker 1

He said, well, We tried to track the inventory and it seemed like the inventories burned down a lot and these programs are ramping and he said, boy, His concern is going to be the spike and we could get overrun. And he was right. And obviously, we decided not to get fiscal year 2019. We're run by increasing by staffing up and building our upper costs in Q3, so we can be ready for Q4. So what do we think about all this?

Speaker 1

I know it sounds a little bit kind of smart alecky, We think it's mostly just noise and static. We think the freight train, the juggernaut has come down tracks that has 100 miles per hour. It can't be stopped. So we'll talk about it on Slide 38. We better be ready or we will be overrun, just like Mark was saying to me.

Speaker 1

Slide 35, Just FYI, the 24 MRES build plan, the aeronaut hours translates into $28,000,000 of 24 Park GE Aviation Jet Engine Program Sales. That build plan is a year old, so I think they'll probably update that build plan soon. Let's see what happens. Maybe it will be higher. I don't know.

Speaker 1

Let's go on to Slide 36. Fiscal year 2020. So now let's talk about Parq as a whole. We have the history just for perspective and you could see fiscal Q1, Q2, Q3 and you see how weak Q2 and Q3 were because of the burn down and other factors we described at the beginning of the presentation. What I'm looking for Q4, well, about $15,000,000 to $16,000,000 remember $7,500,000 for GE Aviation programs, that would be about 7.5 to 8.5 for non GE Aviation, talking sales and EBITDA of 3,200,000 to 4,000,000 Doing the math really.

Speaker 1

A lot of variability in EBITDA based upon which programs are active that kind of thing and the timing When additional costs got legged in, well that's our the best guess we can give you. And then we talk about the total for the year and that's just kind of adding up 1st 3 quarters plus the forecast for Q4, so nothing but just doing the math here. Looking at the sorry, 24 total compared to 23 total. The top line is about like 23 and the bottom line forecast about like 23. So, 2024, we're kind of stuck in the mud as compared to 23, but looking for that breakout that we're talking about Going forward, Slide 37, following these are updated.

Speaker 1

Okay, we won't spend a lot of time with the preamble, the preliminaries here, but fiscal year 2019. We went through this for last two quarters. This is our outlook, very important stuff, very critical stuff for both GE Aviation programs and Park generally. So we think that the outlook is actually more important and meaningful than the quarterly forecast we gave you, even though we did give you a quarterly forecast. What's the timing for the outlook?

Speaker 1

People always ask that. We don't know. We said the freight train is coming, can't be stopped, Better be ready. I mean, the Airbus CEO said they're going to be a 26 in 2026. So I don't know.

Speaker 1

I mean, it's not I'm not in a position to 2nd guess him, why would I do that? Let's go on to Slide 30, what is it, 38? So here's the juggernaut. This is GE Aviation's jet engine program revenue outlook. I'm not going to go through it because we went through it.

Speaker 1

No, there's hardly any meaningful change. There's a little kind of fine tuning from Q2. The main thing we covered in Q2, I think went through this each program in detail during our Q2 call. So if you want, you can go back and listen to that. But the main thing we're trying to convey is that This is these forecasts are not aggressive.

Speaker 1

These are conservative. We went through each item, each program. The revenue per unit, we know that information. We have that from our customer. So the only question is what do we assume in terms of NG units and we went through the explanation of that in Q2 and Like I said, we think they're pretty conservative, ends up at $55,000,000 based upon the assumptions That are listed below, which we will not go over, but you can read them.

Speaker 1

If you have any questions about them, let us know. Slide 39, this is the outlook for all the Park, not just GE Aviation. Sorry, we're running long, but we're almost there. And this is identical to the slide that we provided to you in Q2, which is really important. So we wanted to provide again, although There's no change.

Speaker 1

And the math is all explained in the footnotes. So if you have any questions about it, just let us know. But we're saying the outlook is $150,000,000 sales $36,000,000 or $37,000,000 EBITDA. But this is an outlook. As we say, it's not a forecast because fiscal year 2019.

Speaker 1

This does not include anything other than the programs that were sole source qualified on and assumption of fiscal 2020. A small increase in our non GA aviation sales baseline, which is $32,000,000 fiscal 2023. So we assume that will go up to $40,000,000 over the outlook period, which we think is actually kind of a walk in the park. I Hope that doesn't sound arrogant, but that's how we look at it. So let's go on to Slide so yes, Slide 40 is just a footnote for in explaining the math how we did it Pretty straightforward.

Speaker 1

Slide 41. So these are examples of programs that are not taken into account in the outlook. Like I said, not a forecast in outlook. Some of these programs will hit, some probably won't, but some will, I think, and we just can't tell you which ones. But I do want to highlight, we're not going to go through them all because they're really the same as we covered in our future presentation, except there's a new one.

Speaker 1

Major new manufacturing project is just in the following slide. So let's go into this one. This is actually a big deal. Just recently came up major new manufacturing project initiatives for Park are questioned by a highly motivated long term large customer. We believe the project has a high degree of likelihood to proceed.

Speaker 1

Why is that? Because there's a motivated customer that wants it to proceed. It's extremely confidential. So I wanted to tell you about it. We wanted to tell you about it because it's a big deal, but we can't tell you anything about it, anything details.

Speaker 1

Just to give you perspective, in order to do this, we need to build a new or purchase a new factory for the project size, dollars 3,000 to 50000, dollars probably closer to 50000 Square Feet. Capital estimated $6,000,000 to $10,000,000 estimate. For the large workforce, that's the hardest part for us. I won't give you the number, but it's a lot of people. Now we're looking seriously at automation to reduce the size of the work 5th quarter, but that would increase the capital spending in automation.

Speaker 1

Slide 43, preliminary estimate of revenues for the project, $20,000,000 to $30,000,000 per year range. This is not we're not talking speculation. I wish I could tell you more about it, I can't. We're not talking speculation about the revenue opportunity. There's lots and lots and lots of detail behind that.

Speaker 1

And it's probably more than 10 years, probably life program. Again, whatever 20 years, 25 years. So it's a big thing for Parq. High priority potentially very important project for Park and our customer. Let's go on to Slide 44, a little bit of a change of pace here.

Speaker 1

We haven't proprietary Sigma struts are incorporated into the James Webb structure. James Webb along with our Sigma struts are established at the LaGrange 2 orbit point located about 1,000,000 miles from earth. It's pretty far away. I don't know, I'd look it up, but I think light travels at 186,000 miles per second. Maybe you could look that up.

Speaker 1

I think that's it. But if you do the math, that's about 5 second 5 light seconds away. Your light year is about 5 light seconds away. In other words, it would take about 5 seconds for the electromagnetic signals and Stuff like that radio signal to come back from James Webb to the earth. The James Webb recently spotted This is just amazing stuff.

Speaker 1

I kind of get chills even thinking about it. It's probably the oldest black hole ever seen, an ancient black hole I hope this is not supposed to be a cute thing. These astronomers are they're sometimes clever. I hope that's not supposed to be Gen Z. Maybe it is This is Galaxy GNC11.

Speaker 1

That's only 440,000,000 years after the birth of Universe. Well, here's something in bold. It's a big, big, big thing. Black holes of this magnitude not supposed to have existed until much, much later the development of the universe. So what's that about?

Speaker 1

Is the universe really 13,700,000,000 years old? Or is it much older than that? 15.7%, I'm no scientist. I don't know anything about this stuff, but I think scientists measure the age of the universe by expansion and extrapolating back how many years it took to get Let's go on to the next one, Slide 45. Our theories about star and galaxy formation correct or fundamentally flawed?

Speaker 1

Our modern cosmological theories about the universe and its origins correct Fundamentally flawed. And there's nothing more important than this, our universe, how to get started. Data and images, sorry, facts are facts from the James Webb are turning modern cosmological science upside down and inside out. We thought we understood so much about the universe and its origins, But James Webb is telling us we know so very little. Our theories are just not holding up.

Speaker 1

Let's go on to the last slide. Just quickly, this is little photos from our Park family holiday party celebration. The I want to tell you about is, this is actually this is not like a meeting hall or something. This is our factory. It's a factory floor.

Speaker 1

We didn't have all these tables here, Let's just stop what we're going through there. See that floor? This is the original factory. This is 15 years old. It's not a new factory.

Speaker 1

See that floor, we don't clean the floor up for parties. It's the most beautiful factory I've ever been in. It's very special. So if you're ever in town, you want to come take a look, just let us know, happy to show you around. Fiscal 2019.

Speaker 1

Okay. That covers our presentation, operator. So if there are any questions, we'd be happy to take

Speaker 2

them. Fiscal

Operator

Year. Thank you. We will now be conducting a question and answer session. Conference Call and Fiscal Year. Thank you.

Operator

Our first question comes from the line of Nick Ripostella with NR Management. Please proceed with your question.

Speaker 2

Good evening and Happy New Year, Brian, and to the whole team there. I know you can't get into specifics of this potential new program, but might you be able just to fiscal 2019. Just say something about the math behind it in terms of the kind of rate of return profile that something like Can we just assume it would be similar to the existing profile? And yes, do the best you can. Look, when you say talk about the company and you use the word conservative, I trust you.

Speaker 2

I can take that to the bank. So you could be conservative. But the second question is, Obviously, Park has a very bright future. And as you've said in the past, you paid your dues. So Concerning how much cash do you think the company really wants to keep on the balance sheet going forward?

Speaker 2

What do you think what's your 15.

Speaker 1

That's a tougher one. The first one, yes, the margins are quite good on this new project, quite good. And maybe better than our existing margins, it's really not worse, fiscal year 2019. Maybe better than our existing margin, so quite good. And by the way, happy New Year, Nick.

Speaker 1

Thank you for your questions. So, hopefully that gives you a little perspective. We there's a lot of information. This is not just kind of like Starting, we have lots of information, a lot of numbers that have been crunched. So we know a lot about this project.

Speaker 1

So when I say the margins look quite good, That's not just kind of off the top of my head stuff. How much cash do you want to keep? Well, that's why I mentioned we got the 9 point $3,000,000 that we still got to pay the IRS for that, that Patriots and stuff. Well, I don't know. I mean, good question.

Speaker 1

It's something we think about the Board talks at all the time. It's really nice to have cash so that if we want to do this project, We said $6,000,000 to $10,000,000 but let's say we spend more money in automation, let's say it's more than that. It's nice to have to nice to be able to say, yes, we'll do it rather than okay, where do we get the money for it. And the customer that approached us, they know that too. We're public companies.

Speaker 1

So They know that if we both agree to do it that we're not going to come back from sale, sorry, we don't have the money. So I don't know, that's a good question, Nick. I mean, I'm not really going to say, oh, we got way too much more cash than we'd like to have. When we had $150,000,000 or so, I would have said that. But at this point, yes, I mean, it's really nice to have the fiscal 2019.

Speaker 1

I wouldn't say, oh my God, we have so much excess cash. I don't know if that helps, but It's kind of an off top of my head, off the cuff answer. It is something we talk about at the Board level quite a bit, Tom.

Speaker 2

Okay. Well, Can I just ask another question?

Speaker 1

Sure.

Speaker 2

I know, just I mean, obviously, With what's going on there, you're going to start generating cash hopefully in the next couple of years. So Even after you pay the taxes and things like that, I mean, it's just obviously, it's nice. We like that you run the Trying to feel it out a little bit, but I understand where you're coming from. Thank you.

Speaker 1

Yes, good point. It's not a static number. You're right, we fixed income statement. So it's something that really we have to evaluate on an ongoing basis, Nick, I think. It's nice To have something so that when opportunities present themselves, we can go after them.

Speaker 1

We never thought of buying stock, It's nice to have cash available for that as well. I companies they go borrow money to buy back stock is like, okay, that's interesting way of doing business, but it's not our way of doing business. So we plan to be around a long time. We're not playing for a couple of years and playing games with our, what you call, financial engineering stuff. Okay.

Speaker 1

Does that help or you had any other questions follow-up by

Speaker 2

any chance? Yes. Thank you so Thanks. Okay. Best of luck for the rest of the year and next year.

Speaker 1

Thank you very much, Nick. Happy New Year to you and your family.

Operator

Thank you. There are no further questions at this fiscal 2019. And I would like to turn the floor back over to Mr. Brian Shore for closing comments.

Speaker 1

Thank you, operator, and thank you everybody for It was really nice to be able to share what's going on Park with you. Again, wish you and your family a Happy New Year that comes from both Matt and me and Tina, Donna, all of us. And we'll be around. If you have any questions, feel free to give us a call. Happy to talk to you.

Speaker 1

So fiscal 2020.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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