Park Aerospace Q3 2025 Earnings Call Transcript

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Provided by Quartr
January 14, 2025

There are 4 speakers on the call.

Operator

Good afternoon. My name is Alicia, and I'll be your conference operator today. At this time, I would like to welcome everyone to Park Aerospace Corp Third Quarter Fiscal Year 'twenty five Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. At this time, I'd like to turn today's call over to Mr. Brian Shor, Chairman and Chief Executive Officer. Mr. Shor, you may begin your conference.

Speaker 1

Thank you, Alicia. This is Brian. Welcome all to Park's Q3 investor conference call. With me, Mark Escobel, our President and COO. Right after the close, we published our Q3 earnings press release.

Speaker 1

You want to get a hold of that because in that news release there are instructions as to how to access the presentation that we're about to go through without access to presentation. This call will be less meaningful. And it's the presentations on our you can link it link to it via webcast, I think that's how you say it. It's also on our website. And as the operator already said, after we're done with going through the presentation, Mark and I will be happy to take questions.

Speaker 1

Just want to give you a warning, the presentation, not sure, it probably take 45 minutes or so to go through. So having said that, why don't we just go ahead and get started. When we go to Slide 2, our forward looking disclaimer info. If you have any questions about it, please let us know. Slide 3, this is our table of contents.

Speaker 1

First item is our Q3 investor presentation and we also have supplementary financial information in Appendix 1 at the back. We don't go over that normally during our investor call, but if you have any questions about the supplementary financial info, please let us know. In the photo here, we have the missing link. Thank you, James Webb Space Telescope. So I'm not sure I understand very well, but I'll do the best I can.

Speaker 1

This little box on the left, there's a kind of an enlargement of that little box kind of in the middle of the image here. And that's, I guess apparently a really, really old galaxy, only about 1,000,000,000 years after the universe began, which is I think about 13,800,000,000 years ago. And the problem for all our scientists is that this is way too hot and too bright for a galaxy that old and nobody understands it. So once again, James Webb is challenging all the wisdom and knowledge that we supposedly had and saying, no, sorry, you're wrong. I mean, we don't really care what James West speaking.

Speaker 1

We don't really care what your opinion is, what your beliefs are, these are the facts of the deal. It's really quite exciting. As I think some of you know, our proprietary Sigma struts are using the structure of the James Webb and they're important parts of the James Webb Space Telescope structure. This is supposedly the missing link. I know what that means between primordial galaxies and modern galaxies.

Speaker 1

I think you got to put modern in post because modern is not like 10 years old or something like that, but we'll see. Interesting and it's really so exciting and thrilling for us to be part of it. I would say this is probably like one of the top five things that Park has done since we started. Not as old as some of the even modern galaxies, but in 1954. Okay.

Speaker 1

When we get go down to earth or come back down to earth and go to Slide 4 and talk about our quarterly results. If you look at the right hand column here, sorry, sales of $14,408,000 Gross margin 26.6 And if you know us, you know that we're that is kind of a miserable gross margin. We don't really like gross margins above 30%. So obviously, we're not very thrilled with that one. Adjusted EBITDA $2,000,000 $2,000,000 $1,000,000 $14,000 So what do we say about our Q3 during our Q2 investor call on October 15?

Speaker 1

What do we forecast, let's say? Sales estimate, 13.5 to 14 point in the quarter. So it looks like we came a little bit above the range for sales, but adjusted EBITDA, dollars 3,000,000 to $3,300,000 were way below that number. So something isn't right, something doesn't make any sense. Let's talk about that.

Speaker 1

Let's go on to Slide 5. The top of Slide 5, Q3 considerations. So why is Q3 EBITDA considerably below the forecast range when the Q3 sales exceed the top of the range? In other words, normally you would say, yes, Q3, the sales were top of the range, the EBITDA should be top of the range as well. So let's get into that.

Speaker 1

And unfortunately, it takes several slides to give you a proper understanding. So let's get into it. Okay, first check item, fiscal 2025 Q3 sales were $14,400,000 as we just said, which exceeded our forecast range by about $150,000 but it's a big, big, big but our Q3 sales value production, we call it SVP was only $13,200,000 or $1,200,000 less than Q3 sales. Normally we don't talk about SVP unless it's something significant. And just want you to understand, SVP is not inventory value.

Speaker 1

That's the value of the product when it's sold. And it's good to think that way because when you were trying to compare production to sales and you have apples to apples. So that's why we use SVP rather than just the inventory value of the inventory that's produced when we make when we do production. At Park, SVP has a significant positive impact on bottom line as a result of production or SCP shortfall has significant negative impact on Q3 or Q3 EBITDA. And probably by about $300,000 actually in terms of EBITDA production absorbs a significant amount of cost into their produced inventory.

Speaker 1

So what happened? Why the production, SVP shortfall in Q3? So there's just several things to consider here. So, one, bringing up the new manufacturing lines and new factory. So we're going through the anticipated challenging process of optimizing new lines as we operate them and operate and ramp them up in a production environment.

Speaker 1

It's a lot different running something in production environment is good. That's where you really learn. That's where you optimize, get the bugs out as compared to doing trials or even qualifications where you could take the time, whatever you want to do it. Production is a very different world. Going to Slide 6, ultimately we expect the new lines, this is important to run 25% to 50% or maybe even more faster than the existing lines.

Speaker 1

That depends on the product type. Also it depends on when you're talking film or tape, but think about it conceptually, it's a lot faster. But we must go through the expected learning curves in order to achieve those results. But ultimately, that will deliver a lot of oomph to the bottom line to be able to run our products so much faster. The new lines are designed with better controls also, this is another factor, better controls than the existing lines capable of producing tighter tolerance, meaning better quality product.

Speaker 1

We actually do not need to run, okay, this is a key thing, need to run new lines at all to support crude production levels. We're ramping up to prepare for the coming juggernaut. We talked about the juggernaut a lot, that's kind of toward the end of the presentation. On Slide 26, we get to that. You'll see very clearly why we don't need to be running the new lines to support production levels.

Speaker 1

That's not the point. Ramping up a little too early though will cost our P and L in the short term. And it's hard to say, you're always doing the best you can to judge when to ramp, when to ramp and try to make little minor adjustments. But ramping up too late and not being prepared to support the major programs as they ramp up that juggernaut, well, we all know how that would end and it's not a pretty picture, not pretty thing to contemplate. You get behind and you're kind of screwed.

Speaker 1

So you want to on the side of being early rather than being late and you just continue to make the adjustments as you need to. But the bottom line is including the impact on bottom line, the bottom line is we better be ready for the coming juggernaut. That's the most important thing for us. On Slide 7, ramping up the new lines is now part of our is ramping up new lines now as part of our plan to be ready. But for the time being, the new lines run less efficiently until we get on the other side of the learning curves with the new lines and business ramps up.

Speaker 1

There's not ramp up. Like I said, we don't even need to use the new lines. So obviously, a lot of extra cost doing that. Next item, well, Park is very fortunate to have a special and dedicated workforce, great people. Many of our production people relatively new to Park and are still at the front end and steep ends of learning curves.

Speaker 1

This is another factor. As the new people are being trained and going through learning process, our productivity that's measured as production units or dollars per work hour is temporarily reduced, okay. So that's going to affect our let's see, the temporary reduction in productivity negatively impacts profitability, just an increase is our input cost per unit production, you understand, okay. It takes more time to produce a unit, so that's going to affect our bottom line. In addition to that, this reduced productivity also negatively impacted our Q3 production levels, which contributed to the shortfall that we talked about, which had a big impact on our bottom line.

Speaker 1

How much are we talking about in terms of the productivity or less lessened reduced productivity impact on our profitability? We're not really saying, but it's meaningful, okay. Our current keep going, bottom of Slide 7, people got 134 compared to 124 at the end of Q2. What's going on there? Let's go on to Slide 8.

Speaker 1

Obviously, the increase in people count at least temporarily places additional pressure on our profitability. We don't need the extra people, we're ramping up for the juggernaut. And actually since employee turnover is way down, we've been able to and this is something we didn't see coming. We're able to ramp up our workforce more quickly than anticipated. That's a 2 edged sword.

Speaker 1

But our people, Tady, Nancy, others are doing a really good job of hiring the right people. That's the key thing. We've always been able to hire people, always for the last couple of years, but it's playing the right people. Park is a pretty unusual, quirky company. And I would say 9 out of 10 human beings are not really suitable for Park.

Speaker 1

So we've got to find that 1 out of 10 human being. And that's also fairly significant. Those 10 extra people probably cost our P and L $150,000 in just that quarter, the just approximately. So that's another big part of the equation. And that was not something we expected to to happen.

Speaker 1

Because you know, we've been talking for quarter after quarter, we're trying to ramp up, trying to ramp up and it feels like it was frustrating. You make a little progress and then you lose the progress. Let's keep going complex and this is a tough one. We've been kind of holding us back. We haven't want to talk about it because it's a really sensitive situation.

Speaker 1

But my feeling, our feeling is that you're investing your hard earned dollars or your clients' hard earned dollars and you have a right to know some of the stuff. So we have to use some judgment, but we're electing this point to tell you something that's pretty important, sensitive situation regarding Ariane Group's rate card, C2B, and G fabric. Remember that Park entered into a business partner arrangement with Aerion Group in January 2022, 3 years ago, under which Aerion Group appoint Park as its exclusive North American distributor of its proprietary C2B fabric. This fabric is used by Park to produce ablative materials for missiles and rockets. 1 of Park's key customers that produces the rockets and missiles of the ablative materials, this is the ablative materials key customer, which we produce with the C2B fabric is going through a recall of the fabric, not part materials of the fabric.

Speaker 1

We will not discuss why that is. Like I said, all things very sensitive. But this customer and other customers continue to buy and stockpile significant amounts of C2B fabric of par. Our C2B fabric nonmaterials sales are expected to be approximately almost $7,000,000 $6,900,000 in fiscal 'twenty five $2,500,000 next year or more and actually $3,900,000 adjusted our Q4. So these OEMs, they're obviously committed because they said their risk.

Speaker 1

I mean, this is their inventory. They keep buying and buying and buying, stockpiling this product. But meanwhile, one of the key OEMs is saying, well, we're requalifying the C2B fabric. And here's the thing, let's go to the top of Slide 9. However, until this re qual is complete, we, Park is not able to produce the ablative material choosing C2B fabric for this customer.

Speaker 1

Now what's going to have to happen, first of all, the program is so critical, it has to happen. But secondly, they're buying 1,000,000 and 1,000,000 of dollars of this fabric. So it's got to have it has to happen, but until they get done with the recall, we can't produce the materials for them. As a result, Park had no sales to this customer of Obaida materials produced with C2B fabric during Q3. Remember that we sell C2B fabric.

Speaker 1

So just to be clear, we're saying we didn't have we didn't sell any materials that were produced with the fabric. We still sell the fabric, 2 different very different things. Remember that Park sells the C2B fabric to our customers for a small markup. So we sell the fabric to our customers, you're stockpiling all those fabrics, small margins. Our margins but the margins we're producing and selling ablated materials in C2 fabric are significant.

Speaker 1

Let me just tell you what we're talking about here. We expected and we didn't know this is going to happen. It's beyond our control. We have no control over the requalification. We're the good guy in between trying to help be helpful, but we can't control how quickly this recall is done.

Speaker 1

But just to give you perspective, in Q3, we expected to sell $400,000 of materials made with C2B fabric, dollars 400,000 not that big a deal. Really? Over $300,000 when it dropped to the bottom line, okay? So now you get a perspective on how this works. When we sell the fabric, the margins are very little because we get a little markup.

Speaker 1

We use that fabric to make materials. Now, it's a customer owns a fabric for the customer. The margins are, let's use the term huge, I would say, okay. So that's to give you a perspective. Until the recall is complete, we'll have to live with this P and L double whammy, selling the fabric with a small markup, but not being able to sell a very high margin of blade materials produce the fabric, okay?

Speaker 1

So at this point, the recall is expected to be complete in March, but we put recall expected in quotes because it's not something we have control over. Now there is motivation because there's pent up demand for producing these rocket and motors and missile systems and they can't do that with fabric, they can't get material from us. So let me just see if I have a note here, just wanted to know, it's okay. So if that does occur, that the recall is done in March, we expect sales to this customer, this customer loan of blade materials, materials using the fabric to be about $2,500,000 or more born in 26. The contribution from those sales, well, I just explained what that would be.

Speaker 1

There's a pent up demand. So as soon as the recall is complete, we'll be off to the races and the limit will not be the market, limit will be how much product, how many systems the customers are able to produce. Let's go on to Slide 10. We've been holding back talking about that, very sensitive, but we felt you should really know what's going on here because like I said, you're investing your hard earned dollars or your clients' hard earned dollars. You're told to know these things, I think, at least to some extent, to the extent we can share them with you.

Speaker 1

Slide 10. So here's a question, why didn't we expect these things to happen in Q3? Why didn't we take these things into consideration in our Q3 EBITDA forecast we gave you? Well, we actually did expect to produce and ship that $400,000 of land materials. That's not really on us.

Speaker 1

That's just because the recall didn't happen. So I think we reasonably expected that to happen in Q3. It didn't happen and we got to P and LWM, we sold $400,000 of C2 fabric in Q3 and that doesn't help us very much at all bottom line wise. And then also as we stated, we ramped up our headcount more quickly than expected just because our history has been difficulty struggling to ramp up our headcount or people doing much better job of hiring, firing firing, sorry, finding the right people, the right people for Park, which is like a little bit of a needle in the haystack, I think, where most people are not cut out for Park, which is how it is. But as far as the production shortfall we talked about and reduced productivity we talked about, that's on us.

Speaker 1

We should have expected those things when we gave you the forecast and we just missed the mark. Of course, we did our best, we missed the mark. We do not hit our production and productivity targets. That's on us. We're accountable for it.

Speaker 1

As a result, our Park people will not receive a bonus for Q3. It's just you understand, it's not like replenishing anybody, but at Park, we have this attitude, roll us together, roll us together. So if we're not making our numbers, we don't get bonuses. That's just how it is. Now before you feel too badly for our people, let's go to the top of Slide 11.

Speaker 1

However, there's a sense of optimism at Park about the coming year in the future and Park family members will receive goodwill bonuses for the New Year. This is not for the quarter, this is goodwill bonuses, but you will not pay for them. So let's go on to the next item. There were significant ongoing expenses in Q3 related to operating our new factory, including expenses for depreciation in the footnote below. That's an annual amount of about $1,000 sorry, dollars 1,260,000 goes into gross profit gross margin, non EBITDA of course.

Speaker 1

And the rest is EBITDA, facilities maintenance, utilities insurance, overhead expenses, people expenses. But those things were taken into account when we gave you our forecast for Q3, before we knew about them. So that's that story. Miss shipments in Q3 actually a little bit better. The production was shortfall was significant.

Speaker 1

But if you have been with us recently in the last few quarters, I think it's been like $500,000 or $600,000 in the shipments. I don't know if it's a trend, but we'll take a little bit better. Usual suspects, international shipment issues, supply chain issues, customers on hold issues, that means customers aren't paying their bills, sorry, they're not going to get shipped, another miscellaneous issues. We kind of have plenty attitude about getting paid for what we do. Slide 12, this is just something we do every quarter for you for maybe I don't know if it's probably fun because it's always the same group of 5 top customers.

Speaker 1

Just quickly, the COOLMAC 909 that is now what the ARG21 retail jet is now called 909 rather, that's the MRAS that relates to MRAS over here the Gulfstream G280. That's AeroSpheres, which is a distributor for Israeli, not aircraft, Israeli aerospace thing called now, which makes the G280 business at other contract with Gulfstream. Then bottom left, we talked about this a lot, the PAC-three Patriot missile, that's Aerojet. And then Kratos, of course, Kratos is Kratos, we all know about Kratos, one of our very special customers in the Valkyrie there. And the 730seven-eight 100 that relates to NORDAM, that's the weather master radome that's used on the 7 37 line, including I think the MAX as well.

Speaker 1

Okay, let's keep going. Let's get to moving up there. Slide 13, our pie charts. I don't know about you, I really always like the pie charts. And if you look at them, you could see a 2022, 2023 and 2024 and 2025 are pretty similar in terms of the breakdown.

Speaker 1

2021 very different that was a pandemic year and commercial aircraft was a mess then of course. Remember airplanes were being flown with like 2 people on them. We're not most of them are not being flown at all. Okay. Why don't we keep going, Slide 14.

Speaker 1

So, Parkla's niche military aerospace programs. So, these are all missile programs. This is a lander's project. Why don't we just focus on missile this quarter? And the interesting thing is, there are a lot of other programs that we didn't select.

Speaker 1

I mean, there are a lot of missile programs that we're active on. But these are some really nice ones that she selected. I won't go through each one of them except I'll point out the bottom of SpaceX. Really, I love that company. I'm just talking personally.

Speaker 1

So I'm really thrilled to be on that program. In the bottom right, little history thing there, Lockheed, Sunnyvale. In 1962, we produced what was called multi layer circuit boards. We developed multi layer circuit boards. We're the 1st in the world, I believe.

Speaker 1

In 1962, for Lockheed Sunnyvale, they said they wanted to reduce weight on the circuit boards. These are for ICBMs back in the old days. And what we did was develop what's called a multiple circuit board. So we go way back with Lockheed Sunnyvale, a lot of history there. Let's go on to Slide 15.

Speaker 1

Okay, you're used to slide, so we won't spend a lot of time on GE Aerospace Transition Programs. We had the firm pricing LTA, dollars 19.29 with Middle River, a sub of ST Engineer Aerospace. And so the obvious question is, who are they? What is this about? Because all these programs are GE Aerospace programs.

Speaker 1

Well, as most of you know by now, when we got on these programs, Middle River was sub of GE Aerospace and GE Aerospace sold in Middle River to ST Engineering about 5 years ago, but we're already on those programs. We've done the factory. We told MRAS and GE at the time that, okay, once we sign this LTA, which is resource source on these programs, we'll build a redundant factory for you. And we did, dollars 20,000,000 factory. And the reason is we're sole source in these programs.

Speaker 1

So GE was wanted to have the security of a redundant factory because they all have all their eggs in our basket. So we did that. And the factory has been in production for a couple of years. We already talked about that. Won't go through all these programs, but these are really all wonderful programs.

Speaker 1

You said that we just love being on these programs. So great to be in these programs. Any questions, any of you, let us know. Let's go on to Slide 16. Let's skip to the 2nd item.

Speaker 1

The fan case containment wrap, the Gen X sorry, not Gen X, GE9X engines for the 777X aircraft. Gen X is like on the 787 and also the 747. G9X for the Satrope 7X produced with our AFP and other composite materials. And as I think you know from last time, we recently received a PO of 6,500,000 dollars for this program. So that means the program is really starting to try to get born when going to production, having their difficulties.

Speaker 1

We'll get back to that later. Next item, we have the LTA provided for a 6.5% weighted average price increase effective January 1. So we're benefiting from that just last couple of weeks. The MRAS LTA was amended, I guess, I don't know, about a year or so ago to include film adhesive products that we developed under our joint development project with GE and those products are all undergoing qualification now. LIFO program, we talked about that last couple of quarters, still working on it.

Speaker 1

We had another meeting, another negotiation session. The ball is in the court actually because right now we're waiting for some of our suppliers to give us pricing. So what I mean, sorry, suppliers' court, suppliers to give us pricing. So what I mean, sorry, suppliers court, I guess, before we're able to recommence our discussions, we need our pricing from our suppliers so we can provide the proper pricing to MRAS and SCE for the LIFO program agreement. Slide 17, let's talk about updates on the generation programs.

Speaker 1

We always start with a big kahuna, the A320neo aircraft family with all these variants. Airbus has a huge backlog of 7,221 airplanes. That's just a lot of airplanes for any kind of commercial aircraft program, any program. Airbus, as you know, is targeting a delivery rate of 75 airplanes per month by 2027. And then let's start let's go to 2018, a little more information.

Speaker 1

Let's see how they're doing. Go through 2018 through 2024, how many airlines through 2020, the only aircraft deliveries, how many delivering per year per month. 2024, Airbus finished with a bang there, 602 average of 50 per month, quite impressive and really impressive, 92 airplanes delivered in December. And that doesn't mean they're at the rate of 92 because these airplane companies have this kind of thing where they kind of make their year in the last couple of months. But anyway, that's a real big number.

Speaker 1

And clearly based on this backlog data already producing 75 per month, not wanting to not because supply chain changes trends. I'm kind of tired of listening and hearing about supply chain chain constraints. I am anyway. Slide 19. So will Airbus achieve that goal of 75 airplanes per month?

Speaker 1

You ask us, you ask me, yes, I think they will. Will they achieve it in 20 27? Well, after a very strong finish to 24, which we just explained at a January 9, 2005 briefing, guess what, a week or so ago, Airbus' commercial aircraft CEO emphatically reiterated Airbus' plan to achieve that $75 per month production goal in $27 So I hear a little bit of maybe comment relief. Are we waiting for Godot? Waiting for Godot, it's a play by Samuel Beckett, some Irish existentialist guy.

Speaker 1

I sort of play hated it. It's terrible. Sorry, Sam, but I think he's not alive anymore. So you're probably not going to get too mad at me for saying that. But the concept is Godot, I think it's supposed to be God.

Speaker 1

I'm not so good at stuff. I get take it from talk to somebody smarter than me. I think the concept is Godot was God and the people are just sitting in there in a play waiting around for God, God never shows up. So I think that's the theme of it. Like I said, if you want to really get it, talk to somebody smarter than me, but I think that's the idea.

Speaker 1

Are we waiting for Godot, meaning waiting for leasing to ramp up and sitting on our rear end doing nothing? We better not be. We better be ready for the juggernaut, the 75 per month juggernaut. That's what we're doing. It's a funny thing in aerospace.

Speaker 1

You get on the one of the programs are so thrilled about and then some of these defense programs, the missile programs, still thrilled about sole source. And it's kind of a 2 inch sword. Once you get on the program sole source, you can't do anything. So wait for the OEMs to ramp up. We can't tell Airbus to make more airplanes, Boeing make more airplanes, COMAC make more airplanes, some of these defense contractors.

Speaker 1

So that's a 2 edged sword. But the thing for us is, we talked earlier about we can't judge it exactly. So we just need to make sure we're ready. If we're not ready, we're screwed. If we're ready a little earlier, okay, it hurts our P and L temporarily, but not be ready, that's not something where these discussions.

Speaker 1

Let's go on to Slide 20. We know all about this, the approved engines for Day-three 20 aircraft family, we've got 2 of them. 1 is the CFM LEAP-1A, the other one was a Pride engine. And just a little I don't know what this is maybe out of sequence, but recently December 6, 2024, GE announced that the FAA and EASA, that's European version of FAA, a certified CFM's new, that's high pressure turbine durability kit for the LEAP-1A engine. That's a really big deal because durability has been the issue for both these engines, the Pratt engine and the CFM, the predoSat-one.

Speaker 1

Like I don't want to be unfair, but really big problems with durability, serious problems. And it's a real problem for airlines. Airlines don't want airplanes that have to sit on the ground because of durability issues. That doesn't work for airlines. So this is really a great thing because I think Pratt is trying to get there, but GE is making some really nice progress on durability, kind of maybe put a distance between them and their competitor.

Speaker 1

But we supply only into the CFM LEAP-1A part of the A320 program. We don't supply anything in today's A320 program using the Pratt engines. According to the Aero Engine News, the CFM LEAP-1A market share of firm orders for the A320neo family of aircraft was 63.9% as of November 30. LEAP has had the biggest market share for a long, long, long time. We track it every month.

Speaker 1

It kind of goes between 60 65. That's a nice market share. At that delivery rate of 75 airplanes per month, that market share of 63.9 translates into 11.50 LEAP engines per year. What's that worth to park? It's worth a lot of clams or whatever you call it to park.

Speaker 1

Slide 21, let's continue same theme here. As of November 30, okay, the AirAsia new stuff, there were 8,148 firm LEAP-1A engine orders. It's hard to if you're not familiar, you don't know, but that's just unheard of that so many engine orders. What are those firm engine orders worth to park? Well, a hell of a lot.

Speaker 1

If you look at Slide 37, we'll do that later on, gives you a feel for what our revenue is per unit. And it's just a lot. And obviously, it's just a huge amount. And obviously, Airbus wants to sell more airplanes and CFM wants to sell more engines. This is how many firm orders they have now.

Speaker 1

They're not done yet. So let's go on to the next item, the A321 XLR. This is still talking in the A320 family. It's a new variant. We just got we're just beginning right now.

Speaker 1

1st delivery was in October, very nice. 1st commercial flight in November of last year. 1st commercial transatlantic flight on November 14. And then according to Airbus, it has over 5 50 firm orders. This is a really exciting program for parts of Beyond.

Speaker 1

Remember the whole thing, theory about this airplane, much better it's a single aisle, but it has really good range and much better payload, more people, more baggage. So it could compete with the twin aisle, the wide bodies, at least that's a theory anyway. So pretty exciting program, I would think. And Boeing has not at this point, they have announced that they're going to do anything to compete against that XLR. So the XLR has that space to itself for as long as I guess they'll be there on their own.

Speaker 1

Slide 22, we're doing time, not doing too well. The COMAC 919, so let's talk about COMAC. We've been involved with the K320. This has a different kind of LEAP engine, LEAP-1C engine. Chinese company plan to deliver 54, 919, 25, 84, 26, 110, 27, 126, 28.

Speaker 1

So they're planning to ramp up. They plan to achieve a rate of 150 airplanes, these are not engines, these are airplanes by 20 28. They report to have over 1,000 orders for these airplanes. This is a very important program for parts, let me stop and emphasize it. The 9 19 is now flying with 3 different Chinese airlines.

Speaker 1

It's really flying in China mostly at this point. And a lot of people thought, oh, it's going to be China only aircraft. Don't tell COMAC that they reportedly have delivered 16. So they're starting, but they're getting there. And here's a big one.

Speaker 1

They're aiming, they say to have EASA certification, that's European certification, 2025. What happened to those? Well, it's a China only airplane. Don't tell Comac that because they're not thinking that. So this could be a I think very exciting program for Park.

Speaker 1

I wonder if it that way, Raming for Southeast Asia, Flight 26, outside of just China. Let's go on to Slide 23. 777X with the 9X engines. So this in August, FAA temporarily grounded the 777X after they had some engine attachment defects were discovered. September 6, 2024, 1 of the 777X Tesla aircraft reportedly returned to skies.

Speaker 1

And I've seen several articles about that, but I haven't it's funny, I haven't seen much confirmation of it. So if you hear anything about it, please let me know, because I'm still trying to we're still trying to figure out what's going on there. The Boeing's current certification and first delivery target with 777X is 26 and as of 2024, they have a little over 5 September 24, a little over 500 orders. This is a real important program for parks. That's what we highlighted.

Speaker 1

And we haven't talked about this very much, but we'll just quickly say the Global 7,500, 8000 with the Passport 20 8 gs engines, they just announced their 200 delivery of that airplane. Going on to Slide 24, again, something you're familiar with. So what do we do here? This is GE Aerospace and Engine Program sales history and forecast estimates. Let's just go down to the bottom right.

Speaker 1

We had a lot of time with the history, which we're just running out of time here. So first of all, Q3, we should talk about that $6,900,000 of sales on GE programs. And we have a forecast for Q4 of only $5,000,000 to $5,500,000 That's a little bit of weak quarter. Q1 was $5,000,000 But remember that was because of the storm damage, Q2 and Q3 about $7,000,000 So looking for not a great quarter in Q4. And it's pretty much booked, so we pretty much know what's going to happen.

Speaker 1

We think for the year 'twenty four fiscal 'twenty five, 'twenty four, 'twenty four, 'twenty four, 'twenty four, 'twenty four, 'twenty four, and what 'twenty two, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, 'twenty three, ' we've been giving you a forecast for fiscal 2026, that's approximately $30,000,000 $28,000,000 $3,000,000 $3,000,000 $3,000,000 $3,000,000 $3,000,000 It's a preliminary forecast. But I want you to know that this is based on an input from our customer. And these are the low numbers. We get a low and middle and high. Those are low numbers we're getting from our customer.

Speaker 1

We'll see what happens. We'll keep you posted. Let's go on to 25. Okay, we've got to slow down here a little bit. So Park's financial performance history and forecast estimates.

Speaker 1

Now this we're talking about all Park. So you already know fiscal 2025, Q3 is where we talked about that. Q4 forecast $15,500,000 to $16,300,000 sales $3,300,000 to $3,900,000 EBITDA. And if you just do the math, we had the 1st 3 quarters, fiscal $25,000,000 for the year, about $60,500,000 to $61,500,000 $11,500,000 to $12,200,000 for the year. But we'll talk about the year in next slide.

Speaker 1

So the EBITDA numbers for Q4 looking fairly good. What's going on there? Well, remember that 400,000 C2B ablated materials, materials that we're looking to saw in Q3. Now we have that scheduled for Q4. Let's knock on wood about that one.

Speaker 1

But you remember how much contribution, it's significant. Our production plan now, remember we underproduced production shortfall in Q3. So we actually and we burned down inventory. That's how we got our sales. This is sorry, I should say finished goods inventory.

Speaker 1

Finished goods at the end of Q2 were $1,700,000 at the end of Q3, dollars 700,000 we burned down about $700,000 finished goods inventory. So in Q4, we're looking to build back that inventory and then some. And because remember production is really good for our P and L bottom line. And I think we'll do better this quarter in terms of getting our production target. I think we're trying to get ahead on production, let me put it that way and I think we're doing pretty well.

Speaker 1

I think we'll be okay with production. So that will help our P and L run and hurt it. Just you know, yes, but inventory went up a lot in Q3 as compared to Q2. But that was because of in transit C2B inventory, a lot of it that ended up being part of our balance sheet at the end of Q3. But the finished goods inventory actually went down quite a bit.

Speaker 1

I also want to tell you something, just because, okay, you should hear it. We have planned for Q4, it says right here, 3.9 in footnote 3, dollars 3,900,000 sales of C2B fabric, which is a lot, but a little over $1,000,000 about $1,100,000 of that is at risk because it requires French government approval. And then that has a significant impact to our bottom line. That's actually higher margin in most of our C2B fabric sales. So that may not happen.

Speaker 1

And here is another example where we're just a good guy trying to help out, but it's a French government and some big OEM, they're trying to make this happen. They say it's going to happen and the French government approval in Q4 doesn't, it doesn't. We won't get to sale and that sale will slip into Q1. I just wanted you to be aware of that. Okay.

Speaker 1

So let's go on to Slide 26. Sorry, we're taking so long here, but it seems like there's always a lot to cover. Slide 26 is also one we have slowed down a little bit. Because let's look at the annual numbers. I think there's interesting perspective here.

Speaker 1

Let's look at the important theme. So supply chain limitations affecting the aerospace industry. Look at the top line, you can see that. We got $60,000,000 in fiscal 2020 before the pandemic, and we're $46,000,000 you can see next 2021, 2022, 2023, 2024. Really struggling to get reborn after the pandemic.

Speaker 1

So the aerospace industry is ramping up costs for the juggernaut. So that's really more of a bottom line factor when you look at fiscal 2025 that we already talked about. And also fiscal 2025 includes $6,900,000 of C2P fabric sales, which of course are lower margins. So that's going to explain to some extent why the margin numbers aren't what the EBITDA numbers aren't what you expect. I mean, if you look at compared to fiscal 2020, the top line is going to be about the same in 2025 is 2020, maybe a little higher, but the bottom line is lower.

Speaker 1

Well, if you consider the 6 $900,000 of C2B fabric sales that we had almost none of those in 2020, that itself would explain the shortfall. And let's see, one other thing I want to bring to your attention. So yes, when we I think in Q1, we gave you a forecast for the year, I think it was $60,000,000 $65,000,000 top line, which we plan to make more or less. We also said $13,000,000 to $15,000,000 bottom line EBITDA, and we're not going to make that. Now at that point, when we announced Q1 and gave you the forecast for the year, we expect there's lots of sales of C2B materials and that's been a real disappointment.

Speaker 1

And that's kind of why partly why we wanted to tell you about what's going on with the recall. It's all about their recall And they're stockpiling, like I said, a lot the OEM is stockpiling lots and lots of the C2B fabric, but until the recall is done, we're not able to produce it. And that really held back our bottom line in the current fiscal year. And we didn't see this coming when we gave you that forecast in, I guess, when we announced Q1 in July. So that explains, say, well, we should have known that our ramping up costs for the Juggernaut, we did, but we didn't know that we're going to miss the mark so much with the C2B materials.

Speaker 1

And we want to take the responsibility for everything we've take responsibility for, but that's not on us. I mean, that's not on us. That didn't happen. We're the good guy trying to help out, but those are 2 big behemoths that have to figure out how they do get the spring fall done. And they'll get it done.

Speaker 1

They have to get it done. There's a lot of motivation. But until it happens, we're not able to produce those materials. And I already gave you a feel for what the margins are in those materials. That alone would explain the shortfall in terms of what we forecasted at $13,000,000 to $15,000,000 when we gave you the forecast for the fiscal year when we announced Q1 back in July.

Speaker 1

Sorry to slow down, but a lot to cover there. General Park updates, Slide 27, most of the stuff just updates that we talked about last time. And to some extent, we include this because the updates, because if we don't, people say what happened, does that mean that that's no longer an active thing. So we want to try to avoid that. Solution treated project, not so it's still a front burner go project.

Speaker 1

Next one that major OEM supplier has part to part with them on the purchase of existing manufacturing line. That's a $5,000,000 investment, dollars 5,000,000 each. Well, we're going to tell you now that OEM is hearing group. So we thought you should know that and also tell you that we're expecting $75,000,000 on contract of sales through 24. It was a contract that we're negotiating with these people.

Speaker 1

So those are the updates. Let's go on to Slide 28. So we talked about this last time, essential large high profile, large and emphasized missile defense program and update. We're sole source qualified in this high profile program. And we talked about being sole source qualified and what that means.

Speaker 1

This revenue is expected this year and ramp up from there. What's the program? Have you heard of the next generation Iron Dome? Let's go on to next item. Park recently entered into a license agreement with an OEM, the licensed technology of hypersonic missiles.

Speaker 1

Not much of an update, we're just in Phase 2 and so far of the manufacturing trial, so far the results are good. Let's keep going with the updates on Slide 29. That agreement with GE Aerospace, this is not the MRAS agreement we're talking about, this GE Aerospace. We talked about it last time. Now the only update is the agreement is complete, executed.

Speaker 1

That when we talked last time, they're still in the works. We can skip over the next item, not really much of an update. In the last item, the supplier scorecard for Memoras, 100, 100, 100. And what does that mean? It's hard, I think, for most people to appreciate what that really means, how significant it is, because it's just not heard of from at least from what people tell me.

Speaker 1

So let's not dwell on that too much, we're running out of time here. Let's go on to Slide 30. New emphasis, this is an important thing, we have to slow down on this one too. Park new emphasis on military defense markets. Why this new emphasis?

Speaker 1

Well, how many new commercial aircraft programs are in the works? You got 777X fortunately in that program. COMAC 929, we can't talk about it, but for reasons that we're pretty sure we'll never get in that program. What else? Don't know of anything else, maybe Boeing will come up with another airplane, but that's still uncertain.

Speaker 1

So but there are significant opportunities materializing which have materialized for us in the military defense markets, particularly related to new major missile programs, which are focused ablated materials and also materials for hypersonics. Currently engaged in several high profile and essential missile programs, ablatives and hypersonics. Some of these programs are quite large. Let's go on to Slide 31. Unfortunately, these programs are highly sensitive and confidential programs and which we're not able to provide specific information at this time.

Speaker 1

I mean, we feel very sorry about that, but these are, like I said, quite sensitive programs. We'll provide more information when we're able to. For now, let's just say there are several high profile programs on which Park is engaged, including 3 missile and hypersonic programs on which Park's material undergoing Sirius as an online Sirius evaluation. Each of these programs has the potential to generate $10,000,000 or more annual revenues for Park. So this is not just casual stuff I wouldn't take.

Speaker 1

I remember also Park is a true blue American company. I'm saying that because we're talking about military cadence. Let's go on to Slide 32. Recent questions from investors. Investor, well, what about that fan case containment wrap for the 9 X engines?

Speaker 1

We used to talk about the redesign risk where the fan case could be designed out. Why are we not talking about that anymore? We could be wrong, but we believe that ship has sailed and the program will proceed with the current fan case design utilizing the container wrap. We also had a question by the way about our strategy. And I don't know what to do about that, but we should want to go over with you.

Speaker 1

But the problem is we're already running really late and it probably takes at least 5 minutes to do even a very snapshot presentation of our strategy. So I'm not sure how to handle that. We'll try to figure it out later. Slide 33, our buyback, really not too much of an update here. We haven't bought any stock since the we did the Q3 investor call.

Speaker 1

So and why is that? Because after the Q Q2 investor call, this is the Q3 investor call, which was in October, the stock seemed to recover, seemed to get to better levels. And we wanted to back off a little bit and let somebody else buy stock, not just us. That's kind of only half joking about that. About one thing you should know is that during Q3, we did actually buy 180,000 approximately shares during Q3 at a total cost of $2,363,000 And that pretty much would explain the change in cash from Q2 to Q3.

Speaker 1

There are obviously a lot of factors up and down, but that will explain that the change in cash on its own. So no like I said, no additional shares have been purchased under the authorization since October 10, which I think is more or less when we announced Q2. And we'll see what happens, are we going to buy more? We really don't want to because we use our cash, but if the stock goes down to those stupid levels and it's been tested those stupid levels in the last few days, we may feel we don't get choice. Slide 34, incredible cash dividend history.

Speaker 1

We can skip over this just to save time. Let's do the last one. When the regular cash dividend declared on December 9, last hour item, is paid on February 4, 2025 and we'll pay it, then we'll have paid $601,100,000 in cash dividends since fiscal 2005. So it will be over $600,000,000 at that point. And like I always say, that's a hell of a lot of money for a small company like Park.

Speaker 1

Going to Slide 35, our balance sheet and cash. So we got no longer term debt, dollars 70,000,000 in cash at the end of Q3. And remember, we got to pay $5,100,000 one more payment of the transition tax installment payments in June. So we do a little math here, how do we think about our cash. We started with we look at these three numbers, dollars 5,100,000 and that's for sure.

Speaker 1

Solution treater probably very likely contribution to OEM partnership, probably very likely. And there are other things that we're probably going to spending money on other projects and opportunities, but these are highly likely. So we take that $17,600,000 we take our numbers $7,000,000 and we say, yes, we probably are looking at $52,400,000 that we really have. That's why I was saying we really don't want to buy more stock because we want to keep that money for opportunities. But if the stock goes down to stupid levels, we'll feel we may feel, I should say, may feel compelled to go in and buy some more stock.

Speaker 1

36, we can go through this really quickly. This is these are the same slides that we've shared with you for the last few quarters. Why are we doing it? Because if we don't, somebody's just saying, what happens here? Are you no longer on board with this juggernaut, the financial outlook?

Speaker 1

And we are. Slide 36, you're familiar with Slide 36. 37, the only change on Slide 37 is this, as I said, the ARJ21, the COMAC Resiljet, now called C909. And then on Slide 38, just want to highlight on Slide 3839, there are some questions about the $15,000,000 number estimated non GE programs incremental sales. We think that number is conservative, especially considering the opportunities that we're seeing on these missile and defense programs right now.

Speaker 1

So and the only thing that we're highlighting on slide sorry, the footnotes on slide 39 is just that, that $15,000,000 number is conservative. So, again, I apologize for taking so long to go through the presentation. Operator, we'd be happy to take questions at this time, if there are any.

Operator

Thank you. We'll now conduct a question and answer session. Thank you. Our first question comes from the line of Nick Repostella with NR Management. Please proceed with your question.

Speaker 2

Good afternoon, Brian. And I just want to say thanks again for the transparency on the issues in the quarter. It's appreciated. And as always, I'm very happy with the way you treat share repurchase. And the language about buying it when it gets stupid is right on the mark.

Speaker 2

I think the shareholder base is sufficiently patient now and understand what the upside is. So we may not get to those prices any time soon. But just a quick question, and I may have asked you this before. There were slides in past conference calls where there was Park content on SpaceX product. And obviously, there's Blue Origin.

Speaker 2

Is that something that Park can still have content in? I'm just interested in that. And the second question is, I may have asked this before as well. Do you think in any way Comec product and what you supply could be affected by hostilities between China, etcetera? I mean or are they pretty much they need your stuff?

Speaker 2

And so that's it. Thank you so much.

Speaker 1

Thank you, Nick. Happy New Year by the way. Yes, in the slide it talks about the reloved niche military programs. I think we do refer to SpaceX program. To me, I really love that company.

Speaker 1

The other one was that Blue Origin. Was that the other one you were asking about? Sorry.

Speaker 2

Yes.

Speaker 1

The other yes. Mark, do you want to chime in on Blue Origin? I think we have some involved, but maybe not that much.

Speaker 3

Yes. We've done some work with them, Brian. We do a little bit of structure for them in our parts operation. It's really niche.

Speaker 2

It's a

Speaker 3

lot of volume. We've built some minor structure for them. And we did a project many years ago. We're looking at strut technology with composites, but they went ahead and went with a metal strut instead. Instead Metal.

Speaker 3

Yes. We did do design and build a couple of struts, but we were not down selected on the program. So we have connections there and we continue to talk with them and still looking for other opportunities.

Speaker 1

Okay. Thanks. To me, I love SpaceX. I just love that company. They're very different than typical aerospace company.

Speaker 1

I would put Kratos in that category as well in a positive way, different in a positive way. So the more we can do with those people in particular, the happier I think at least I will be. COMAC, this is an obvious question and a good one. We'll have to see what happens. I would be quite shocked that anything happened quickly because the 919 is a real prestige program for the Chinese.

Speaker 1

And I'm not an expert in their culture, but that's really important to them, prestige, make sure that they're respected and loose faced. And for them to change gears with materials for the 9/19 program would be so risky and could put the program back years. So we'll have to see what happens. I don't know, but I'd be skeptical on anything that happens soon. The Chinese, as you know, they talk about developing their own engine.

Speaker 1

And I'm not so sure that's really an issue with trade tensions. That might be more of an issue with CFM. In my opinion, CFM better make sure they get enough engines to the Chinese because if they don't, they're just going to give the Chinese more motivation to develop an engine more quickly. So I'm just that's just my opinion. I could be wrong, but that's my perspective.

Speaker 1

We're always nervous and concerned, but I wouldn't say that would be at least for me, my top ten concerns that we lose the Comeback business because trade tensions between the U. S. And China. We'll have to see how that works. A lot of it could go different ways and people are thinking also.

Speaker 1

We'll have to see how that works. But I don't know what else to say about it except I guess maybe for perspective, not one of my top ten concerns right now anyway. Any other questions, Nick? Or is that going to help you out a little bit?

Speaker 2

No. Okay. Thank you so much.

Speaker 1

Okay. Thank you, Nick.

Operator

All right. I'm seeing no other questions. I'd like to turn the floor back over to Brian for any closing remarks.

Speaker 1

Thank you very much, operator, and thank you all for listening and having the patience staying in here for all hours. And I'd like to take this opportunity from everybody at Park, all the Park people to wish you the very best in 2025, a very happy New Year to you and your families. Thank you and goodbye.

Operator

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

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Earnings Conference Call
Park Aerospace Q3 2025
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