Q3 2020 Earnings Call

Okay.

Time, I would like to welcome everyone to the Park Aerospace Corp, third quarter fiscal year 2020 earnings release conference call and Investor presentation.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

If he would like to withdraw your question. Please press.

Thank you at this time I will turn todays call over to Mr., Brian Schwartz, Chairman and Chief Executive Officer Mr. Sure you May begin your conference.

Thank you operator, good morning, everybody. This is Brian so about star bulk worse year fall as usual.

Welcome to our third quarter carpet school, so happy new year all.

So I want to tell you mentioned you that we'd have a presentation. That's been posted on our website and its also on a live webcast.

Really we'd be good for you to get that up on your screen or your I phone.

Because we're going to go through that will make the call lot more meaningful for you. If you don't have enough already.

Instructions a paragraph to earnings release, just how to access the presentation. If you haven't done not already.

Oh, so what im not sure that there's some supplemental financial information, which is attached to the presentation. That's appendix. One so you may want to check that out at some point.

Yeah, a couple of other Justin or North Korea.

Call much before we start with a presentation. So I'm not don't cover the same things each call well we try to cover things are we think are meaningful interesting irrelevant, but let us all we're saying.

No there are other things you're what goes to cover during these calls.

So these calls her for you were not here to promote or hyper our company.

These calls or for you will not show just let US know your thing was there anything else you watch the cover any of the focus you like us to consider what is no. This is your time not our car. So we'll go ahead, though and go through the presentation, but I will do that for you and then at the end of the presentation, probably take over half our just want to show a brace yourself.

Then will be how could take questions right. So what are we just skip over to page to the presentation. That's are forward looking just going this flavor language. So just what smoke you'll be questions about that later on.

And Matt.

We'll take over for human rights to cover slides three and four Oh. So go ahead Matt.

<unk> okay.

Yes, Brian on January eight said board of directors declared a special dividend <unk> dollar share are able to our shareholders payable on February Twentyth 2020 or shareholders of record on January 21, the total amount Oh, the special dividend is approximately 20.

$8.5 million.

And putting that special dividend and the regular quarterly dividend up 10 cents per share.

Well on February four two shareholders of record on January 2nd harmful, Hey, proximately $536 million or $26.15 per share of cash dividends since the beginning of our fiscal year old pause.

Works regular cash dividend.

Yes.

He's been paid.

Quarterly kept it actually dividends paid back and paid every irrs and try to 95 never skip for reduced.

That the that regular Goodman.

Moving onto slide four.

I just want to walk through with you how we kinda. Thanks, Bart cash balances, although our balance sheet chose $144.2 million at the end of our third quarter.

Some of that cash is.

It is really committed to internet for future use.

When we had the.

The tax law change back in December 17, there is a transition tax that's got to be paid over a period of eight years for a couple of years and for that so the remaining installment payments on that that transition tax is 17.7 million that's got to be paid seven.

Six years.

The.

You know expansion that we've talked about in the past.

It has to be gone so the remaining payments here without expansion, although it's not a legally committed and theirs and watched barring any sort of major event. So.

This is how much that we won't have to pay out.

It's our best estimate how much will have to pay out to complete that expansion.

And of course, there's such a 20.5 million I've just talked about for the special dividend payment.

So the way we look at the cash held all at 144 million on the balance sheet, it's really roughly 91 million that we see that show its remaining available for.

Any purposes, we see going forward.

Uh huh.

I think I've covered what I need to cover here.

Okay. Thank you Matt very good alright. So you know are just said that or comment I guess that off.

All waters or what does matter was 500 in.

$536 million, so cash dividends since.

2000, and a five preschool your 536 million.

Yeah, we have no debt.

$144 million with cash.

Lot of money to be paid out my opinion by small company was pork and were started by two guys.

Think about 50 60000 Bucks back in on thank you for before [laughter] My opinion, but what you should know that.

So what are we move on to slide five or.

That was referring to a new in Kansas expansion.

Yeah, that's certainly in progress now the picture on the top right is actually about a month old sorry. Unfortunately, we couldn't get an aerial photo of more more corner. Your forward abuse actually a lot more been done the last.

A month.

So the original budget was 20.5 million.

And the spending as Matt indicated or sorry, Matt talked about how much lucky to be spent 15.1. So we spent about 5.4 so far.

The completion is now expected the end of count of this calendar year founder 2020, and that's a delay that's about a four or five month delay, which were not very happy about scores by a couple of major things governmental approvals or the process of more complex and time consuming and anticipate the governmental approval is really you have to you know.

Maybe surprised to hear this but if you build a factory in Europe or do you need to go after your approval for it I know it was more complex than we anticipated awful. There's a lot more additional time required to finalize contract another arrangements related to construction I don't know, maybe we didn't have enough urgency, but but you know we've done the three times now and so we felt we caught up.

How did the the system down and we were surprised it's not we anticipated so maybe sort of talk from a lot of charm three times meeting that our original building, which was I guess, what do we broke ground that building. Maybe 2008, then a couple of years later, we do our first expansion to the building kinda back into building it looks to pick.

Sure.

So this is our third a third shot at it and we're still not.

Or getting it exactly right. So that's disappointing, but it's about a four melt more four month delay and that means that the facilities <unk> SAR expected to be qualified entered production by the end of calendar 2021 that would be especially for our.

Large customer.

<unk> as to your engineering.

The expansion is now expected to provide a 55 to 60 million of additional heartfelt composite material manufacturing capacity, we'll talk about capacity little later on to be starts interest from confusion about capacity, but we did push that number off I think the last time, we spoke to you we indicated might be 50 million well, we pushed darden abrupt and we push it up like Chris.

<unk> uptime assumptions realistically, but we feel that we needed to do that so no. We're talking about a little bit more capacity that will be.

Generate about <unk> factory once we go to slide six or so let's get right into an estimate of manufacturing capacity. So record second quarter call. We had some questions and comments, which made it obvious to watch that they're worth confusion about or manufacturing capacity. So we wanted to lay it out for you in more detail and kind of.

Go into.

More of a deeper explanation of it.

So, let's just talk in the top or slide six one slide six.

We need to separate the different aspects. So a major aspects for components of our manufacturing operation for you in order to have more intelligent discussion of manufacturing capacity. So first let's talk with hot mill treated a composite materials 60, and film and people and that's the May wind up we used to reduce hotmail materials Oh last quarter.

I think we said it support we had $45 million or capacity with that.

That line, there's also 24 inch film and tape wise.

Million dollars capacity or before I proceed you know, it's I got to cover something important.

Apologize forgot there's a little asterisk a footnote right of the capture level look what it says manufacturing capacities hardly variable and significantly impacted by product mix very important emphasize this use or capacity is going to be manufacturing capacity is going to be estimate and it's in a significantly impacted by product mix.

You know not by a couple of million dollars, what could be impacted by lot more than that so just due to be aware of it the big variable. So it's hard to back up on your but let's just pick up we've got 24 installment tape won $8 million now your assumption here to look at a double asterisk is that that tape wanting to 24 insulin is being exclusively use for the June .

Hey, gene on attainment rap program that we've discussed in the past so I want to remind you want their program. We appealed for that program for you on this year, but we've not been awarded this program. This is a GE aviation program not a numbers program. So remember for it with them Ross We got about long term agreement through 2029. This is not included in the long term.

I mean does we previously explained I just want to remind you that though so.

We're saying.

For purposes of this analysis, let's say, we only use a 24 inch line for the the cost containment wrap our production $8 million, but we want to make sure. We're moving all the case wrapped production from 60 on slide 16 on slide will have more capacity and we'll get that I guess a next page of this.

Our presentation, so solution treaty composite materials 55 million, we don't talk about that too much.

Because we're not nearly utilizing.

Capacity or bars are solution treating equipment.

Composite parts fabrication and assembly, we really don't even I think of it because it's it's not the we've looked at the composite parts business. So we don't one the composite sports business that way, we looked at our composite parts business as a niche business. We go after niche opportunities reports were not looking to quote unquote thought the factory.

Not.

What we do composite parts everything we do a composite parts are going to be good margins and you're going to be niche businesses things that will be good for park. We're very fortunate. We just discussed as before and then sense that we are composite parts operation isn't the same facility you guys were composite materials operation because it gives us the ability with comp compare.

As a part so not helped it flipped the factory we can take business. That's good for US we're not take visits and that's not good for us. That's a pretty unique is special thing we have a lot of other companies a composite parts don't really had to luxury let's keep going estimated toll composite materials manufacturing capacity I think we just did the math to got more pocket calculator out hundreds.

$8 million that doesn't include composite parts of course, no. There's an issue related to $45 million Hot mill materials manufacturing capacity from the 60 inch up you'll know tape launch let's go through the issue is a couple of points you Gotta go through to get to the punch line. So the GE programs business represents a large majority of the current hot melt business, we talk Hot mill.

No it's largely G program to other customers that we produce hot mill product for but it's largely consumed by the GE programs. The GE programs business. That's been subject to significant short term variability you know peaks and valleys. This is key remember for you people that have them with with US. Some years, we got that burn down about five years ago.

Inventory would often went down and then if you remember in fiscal 19, the first couple of quarters there were others.

Destocking going on and into fourth quarter restocking. So I think we explained as Steve before but in the fourth quarter of 19, our shipments to for GE programs were three X three times, what they were the first quarter and that's because not just because the programs rolling and a program to ramping but because the Evan.

Story ups and downs. So there's lot of variability was peaks and valleys had no material production was approximately 9.5 million yeah fiscal year <unk>, sorry in the third quarter, just third quarter, sorry about that so let's see let's do the math 9.5 times for what's that is that a $38 million, okay that shouldn't be a problem.

It's less than 45 right. So let just taking the run rate, let's say, we ran at that rate, but let's look at the next item, but what what the hot melt materials manufacturing operations produced at an annualized run rate of $45 million.

The month of October and November why that happened once we got behind the power Urban September will explain that later to a point is that it's not going to be a level thing an order rush to one or business.

We need to have more capacity, because the peaks and valleys as compared to the average production during the year.

If you follow them, saying, Oh, let's set them try to give you little more caught up our perspective on capacity, rather just superficial information bought it slide seven what's going on slide seven more by capacity.

As a result of short term variability, we've been talking about peaks and valleys of the GE programs business and maybe difficult to handle the peaks and $45 million of a hot melt materials manufacturing capacity to the point.

Now, let's go next item additional hot melt materials manufacturing capacity provided by expansion will not be available and qualified for two years, where we discovered that so that doesn't sound very good does it we've got $45 million capacity for the next two years, that's not so good but wouldn't do about our solution we're going to work.

Leasing or hot mill or 16, it's hot mill, a manufacturing about 50, 60, and Spelman pipeline I should say hot melt manufacturing capacity from 45 million to 55 million.

This is we think very achievable very doable two things we need to do as we mentioned before we need to move all of the gene Onicha production through the 24 inch film and tape wind that has to be completed yet obviously, we have to work that with our customer as well.

Gotcha and cross been progress and a in process rather and then we're also increasing the 16th film and TV launch uptime by 10% again, increasing uptime optometrists meet the percentage of time that the machine is actually producing product product is actually running through it.

Over a course of 24 hours, so 12 hours apart and that's 50%. This theoretical numbers you know so 18 hours would be what 75%, that's what uptime beach, so and Ah last item.

College the sets the there's a lot reinvention list I mean until you actually need it you don't really work hard to get it and we're talking about manufacturing capacity here. We've been through this for many many years of electronics in the old age as well. So this is not a a new experience for us and again I think the.

Building sheet 55 million job numbers, it's quite realistic.

So its quite quite achievable, what's going to slide eight.

Okay. What's this about how we're talking about Q3, what happened in Q3. So the prior quarters are provided for your perspective, let's look at Q3 sales were 15 million a 47 gross profit a little over 5 million gross margin three 1.7 million, we'll be talking about gross margins, because it's getting a compressed a little but isn't it.

So into your EBITDA Threemillion 620 to.

Go into the first ROI them, what do we say about Q3 during our last quarterly conference call. We set ourselves estimate was for word or start to [laughter].

Rushing because I think we've locked to cover a so.

Maybe too fast 14.75 million to 15.75 million. That's what we said that was where are you know our estimate for you and.

Our forecast estimates or need but all we said was 3 million to 3.5 million. So we came in both topline and EBITDA, just a little bit above the top the range with sales there was a.

Just wanted to the bad $97000 about the top of the rage EBITDA $120000 above the top of them or just a little bit.

So both effect for Q3 and of course, we're not leave it that now we have to discuss Q3's, what's going to slide nine.

So.

Got it could be perspective noon coming behind the scenes under the numbers information perspective, so let's start the top carbon fiber supplier supply sorry continues to be very tight I'm kind of a broken record now they're very little slacker leeway in the system.

Parks carbon fiber in fabric raw material inventory is at historically low levels hand to mouth. So the supply is limited our inventories limit so.

Pretty obvious what we're going with this.

Then remembered the third item. This goes back to our second quarter call. We had the issue with distorted a carbon fiber weve and polyurethane film Wrinkling in Q2, and there was associated rework with that and that but that carried through into September and December Q3 and that Rick.

Well to then a park incurring additional cost of rework in Q3, Patrick there's a gross margin impact to that number the gross margins are being compressed as I said.

The next item the on availability carbon fabric and then the resources diverted from production operations to rework operations and that turned resulted in significantly reduce production in September we got behind the power curve in September , particularly for do you go Hot mill product.

Now the need to run held by production in October November at an annualized run rate.

45 million that this resulted sorry in the need to run Hotmail production in October and November it and what is one way to 45 million remember that we set our manufacturing capacity is the current manufacturing capacity limit a park 16 inch hot melt film and tape wise. So let's go to the next ROI them running.

Well the operations at or close to manufacturing capacity limitations for the two full months of October November combined with historically low carbon fiber and fabric inventory levels required intense focus and brute force suffered by our manufacturing people are great manufacturing people and resulted in manufacturing efficiencies additional costs.

And produced gross margins why is that so when.

We're still tight we're pushing up against your capacity not for two weeks, but for two months, it's really hard to plan effectively in terms of running the operations with maximum efficiency shorter runs more changeovers less predictability. So it's pedal to the metal I know that's kind of Oh.

So expression, but that's the best thing come up with pedal metal sprinting for two months.

Not a for the week of heart or will Q3 was not easy quarter manufacturing floor.

I guess, maybe some people think it was a good quarter, Russia was a good quarter, but a tough quarter.

It was not an easy quarter.

To run.

Right your capacity limit for two months nonstop, that's not an easy task like I said not for the week of partner will but what our manufacturing people are great manufacturing people did what they had to do they got to job done. So you know I just want to comment that the shortfall in Q2 it really.

Well, just really that us and when we got behind to car power curve in September but.

But we just really didn't want to not meter objectives. In Q3. So we did what we needed to do.

Just.

For yard Kishore understood everybody at park received a $250 bonus for Q3, and we felt it was well deserved let's go to we've talked about ports people little bit are ready, let's go to slide 10.

Parks people count.

So we hired a 10 additional production let people during Q3 and actually should stay we probably started in Q.

Due to a wants to stay up to four shift hot melt operation, where we talked about that last quarter and then for other manufacturing lip functions at hot melt tape line operation at 24 inch Hotmail tape one operation now running 24, seven which obviously it leads to right now.

No managing parks people count somewhat of a trial nerve process. When we mean by that we're you know in somewhat uncharted waters, you're starting from scratch with nothing probably I guess, we probably broke ground in 2008, and we're kind of learning as we go weren't a steep ramp so were I guess, playing up by you're a little bit.

We always tend to run lean park tends to run lean always such as how we do things that goes back to 954 Park attempts to do more with less always that's how we compete always that's going to something about us will never change it.

So we're really reluctant to.

Casually.

People, we have people cautiously carefully as we go.

We don't ever want to layoff people and Kansas, We've never done to lay off I can't say, we never will be sent by God.

But we're very opposed to laying off people why is that we want our people to believe that they can build a future here at park.

Though we'd like people off like or a commodity that's a you know.

How are they going to believe that there, but the ability to.

Build a future with us it's very key for US you know the big companies I'm not criticizing them just pointing out the different state heart thousand people have time to lay off thousand people over time.

You know, it's nothing but that's not us that's on us. So we hired people carefully because we don't want to add people unless we're convinced that those people are going to be there for long term.

Additional people, though obviously packer gross margins I'm you know just the fact life and our people count as 103 five so that's how many people receive that $250 bonus hundred 35, other factors, which affected the Q3 EBITDA gross margins.

Broken record here this stuff will you'll see in Q4 as well.

Outside testing costs related data development for new product expected to be releasing your future remember we are lab as a capacity as well. So we wanted to do this testing in our lab, but we were getting to it. So we had up we're paying it outside left to do the work very expensive gene <unk> I'm, sorry, I apologize GE Nottage program in factory.

Product development costs or this thing is this program. This new trials are really bird European no. This is a lot of work a lot of effort and not not much in terms of current returns for it I mean in terms of financial returns.

Some of the product we produced is actually sold some of its trials this and sold but it's just it's not a good economic thing.

No. We hope of course to get the program at that point, we'll be happy about it it'll be good economic thing and it should last for long time.

Right now we're paying the price a film these are manufactured trials and development expenses that's ongoing.

The cost us a the cost of operating at 24 in shopping online or there's a cost of doing that as well and legacy costs are they should and in Q4, but we still carry to legacy costs in Q3 and probably in Q4.

Let's go to slide 11.

Oh, no we talked about what happened Q3, let's talk about Q4.

Q4 as highlighted.

The right hand column is just addition, that's the fiscal year, but just adding the comps the 1234 costs. So let's focus on Q4 forecast for Q4.

$15 million to $16 million revenue EBITDA 3.1 3.6 million.

A few things I want to point out regarding Q4 piece, where we started Q4 of course as of January three.

Just always we go Friday may be do not shipped so far in the quarter plus a few months book to be shipped in the quarter was about approximately 13 million. So there's a little bit of holder, Phil you get to that $15 million to $16 million topline.

Also unfortunately, it stage of who all over again.

Okay, Great Sage Yogi Berra right.

We're off to a slow start in December two things, let the shutdown from major maintenance, we've been running our factory. So hard that we just haven't had declined to do the major maintenance I'm not talking about normal PM to talking about stuff that you takes a couple weeks due for instance.

Forward looking really kind of crappy and we just couldn't read we didn't we couldn't get the timing to redo our floor. So we put the bull and we've said look we're doing it over the holidays, but as it was quite a long shutdown and when you're when you're doing before you can operate the factory of course and other major maintenance items. So we felt we needed the bike the board ticker these things which I.

And put off because we just wanted to factor so hard when it's time to do it and the carbon fiber shortage of again, you know you're probably start here and as I certainly am.

But.

Oh, yeah, the a supplier.

Okay, but will meet our forecast, though a fiber was air freighted for Japan. This week, so we're catching up.

So here, we are again a wi.

You know are behind the power curve December was just four months. So we're going have to make it up in January February .

Uhhuh all over again.

So okay. That's our.

Comment about the more perspective on Q4, however that store forecast I mean, we are the things were just discussing obvious we take those things to account we come up with a forecast I will remind you that middle sandbag or forecast, we give you forecast what do we say, we're saying to you. This is what we think will happen we're not sandbag.

I can get so we can beat it or something like that.

Other people I think that's a good way to do it but that's not the pork way. We tell you is our best ability to tell you what is true we can be wrong, but it's our best ability to tell you what we think will happen.

Okay. So, let's keep going factors, what Tony to read them because the same factors that we talked about for Q3 rights are still in place outside testing costs you not next program film with use of trials or 24 inch line legacy cost like I said, they should end up by the end of Q4, so hopefully that item.

Our.

Next quarterly.

Presentation.

And I want to remind you by the way that Q4 of 'em last year.

Was a.

14 week quarter. That's unusual this years Q4 is a 13 week quarter like our normal quarters. Every four years. We have you have a 114, we quarter to come to catch up.

With.

The calendar, let's go to slide 12.

On a time not so will slide 12, or so more comment about our forecasts factors affecting predictability of short term forecast actually this is not really completely correct effects not to short term forecast it affects more interim forecast as well. These factors all the major judge accompany programs at GE programs accepted some 47 day my favorite airplane.

We are ramping or in development makes it very difficult to forecast fees. When things are steady state you can kind of predicting better when things are ramping then the question as well or they're going to ramp that pay off to a little faster a little slower it's much more difficult, especially for short term forecasting to understand what will happen when programs are ramping stress you ran.

The steeply abuse again, your uncharted territory as well a severe stress and aerospace under through supply chain not new item, but this continues its very present very palpable and it makes things very difficult because whatever we say whatever our customers says they have other suppliers at those other suppliers are being the.

Or the timelines mean demands commitments it can slow everything down and that's something very hard for us to predict up because of tight manufacturing capacity reduce carbon fiber in fabric raw material inventory and tight carbon fiber supply, there's very little slacker leeway in the system, making it difficult to recover from supplier production torture.

Defaults in other words, we get behind you have to catch up it's not so easy piece was sold to find raw materials to carbon we opted to manufacturing capacity to do it to catch up.

So we already commented what happened in Q3, we were pedal, but metal for two four months than a hot mill.

Just a flat we're not going to we're not updating or.

Long term forecast today, we'll do that on January 15th, but the Needham Conference.

And it will be attending these conferences.

To give little more information that later on the presentation and that would be the point at which you will see or new long term forecast.

We haven't quite finished yet so we'll do it at that point.

Slide 13, Okay. So maybe this is a little more interesting it kind of fun stuff.

Update a major jet engine company program such to GE aviation programs bone. Some 47 is flat how long will liquid disguised reproduced I hope forever, but.

Some people think problem not likely or that's like I said my favorite airplanes. So that they just continue at that would be a kind of a poignant moment for me.

But we love that program that was our first program also our first she program for GE program, so that sentimental value for that reason as well for shipment I think was.

Was a covered 28 2014, which for the 747.

Second item yeah.

This is a big deal day through 20 Neal family. That's a 321 deal to a 321 XLR, that's a very strong and still ramping.

That's like the big honed over.

Of the GE programs, we supply into the bombard, but that's not the old one bombarded global 7500, the passport 20 engines, it's ramping nicely the Comac Air Jay That's regional jet larger 21 with the Cfthirty 410, a engines that's ramping nicely uses all good the comac 919 with leap once the engines that still.

Down the road ramp for that ended the Triple Sevenx Fuji NYNEX engines, Yeah. That's been pushed out your problem like shock to hear that because who knows what news about triple Sevenx and no delays in the schedule and.

All kind of comps get things are born right now so the current focus and this is coming from our customer course for US is the development work again, I'll remind you that the triple Sevenx. So you started the GE NYNEX as a GE aviation program not an embryo onto the M. Rochelle to you.

Top five customers. This alphabetical order, let's talk about them hey are they've been popping up recently, that's for multiple programs, mostly interiors structures, a GKN aerospace that's a mostly for Sikorsky and GE aviation programs, a kratos defense and security systems.

I think we've mentioned were the we think were the main well we're told by them would it make supplier material prepared materials for older target attach will drones, including the dockery They announced recently Lockheed Martin.

Got to tell you that's a speaker programs of secret development program and I don't think will ever be will tell you anything about that.

Other than just a secret development program.

Middle wherever aerostructure systems, that's the Holy Grail.

Comment on them I think in all the or.

Let's go to slide 14 recent developments. So these are some big things and maybe some things of interest.

One of a combination.

A major a private space company and our recent progress we can't say more about than that but it's very exciting program for park to beyond very happy about it.

We are qualified a new Saar in initial low natural low rate reduction sorry about that a new you'd be tall program you read about these quite a bit sometimes nickel urban air mobility.

Air Taxis. This is for a large OEM. So we're hopeful on that program.

We're well qualified a new Hypersonics program. We received original appeals for that we're not able to talk about that at this time, there's a nice one BC 10, KC 10 aircraft. The KC tenants that I think the the tanker version. The DC 10, it's a big three engine are playing that was developed by Douglas it's not in production anymore, but weren't production of a niche pumps.

I wanted or these are I guess, you go spares using park materials and that's really keep you sometimes we produce a components are parch reusing somebody else materials. This is parts proprietary material. So it's a very nice thing. This is not going to be a very large program, but we love. These kind of programs, we love It would happen no it was too difficult.

That's kind of or.

No. This was as a way of doing business or modus operandi.

Huh Northrop Grumman.

So we've been on this program for awhile, but they recently announced plans to increase the global Hawk and park materials are qualified knows programs so that.

As a news recently the goal Hawk because that was the.

Type of growing those shutdown.

By the Iranians.

So this next item, yes. So there was a wall Street Journal Article December 22019, recent article putting a deal.

For CFM manufacturing Cfms, the JV between San Fran and GE Aviation Leap engines, CFM Internet international to produce it increased volume of leap engines for that's for the Athree 20 deal family of aircraft, that's the big Huiner for Park.

So in addition to that there's been no soldiers couple things going on here. A this is actually a market. Your thing. It's does relate this when does it relate to the problems with the 737.

I think more markets, you're being given this leap one day as compared to the Pratt.

You are turbo friend.

The for 20 Neo family shares.

Two engines that are qualified.

Certified one is the credit engine ones. The leap engine, we're in the leap program through Empress and it looks like cordoned. This article that CFM is a deal to take on more market share.

Were there there are their engine.

The other thing is there has been reports recently that because of the seven through seven backs issues that Airbus is actually attempting to increase production of you through 20 family of aircraft. So what does this mean for park, it's hard to say because the question is going to be tend to suffer.

Flightseeing support these increases maybe weekend, but we're only one component on an airplane.

The question is kind of supply chain support these increases theres lot of pressure in the supply chain already as I said, so we'll see.

Actually it's a good development for park, but it's hard for us to really understand what I mean, it's a positive development.

We're not not possible for us to quantify it though.

Next item a single Isle of versus wide body aircraft a paradigm shift there is lot of reporting about this as well.

That's a trend is more towards single aisle aircraft and away from wide body aircraft. There's lot of reasons for that in terms of dynamics about air travel, which won't go into now you could be re plenty of articles about this was not does not come for me.

But the point is that single, Iowa or what.

Like for almost a consensus from what industry analysts.

Hey.

It seems to be the placed seem to be it seems to be the place to be the single oils and.

It seems like we're well positioned with single aisle.

The Athree 20 family of aircraft into Comac 919 aircraft.

So that's very good for park.

Other major single aisle contenders to Boeing 737 to 737 Max aircraft, we don't have any content, we're aware of on that third platform.

So I just want to say this was pure luck side like we had some key strategic vision that we're going to focus on single aisle. We saw that single aisle was going to.

Going up and that wide body be going down. It's also not just walk in terms of being on the Athree 20 in the Comac nine one non as compared to the seven through so the Max we of course, didnt with but we didn't foresee the problems with the sub.

Three seven Max just pure luck in both cases, but nevertheless.

We still feel like we are positioned well in the single aisle area, which seems to be the growth area for commercial aviation.

Okay. So we're almost on a thanks for hanging in there or Supersalon Slide 15. So park is still immersed in battling through challenges related relating to Steve program ramps ongoing severe stress on the earthquake supply chain tight supply of raw materials operating with tight raw material inventories and our own manufacturing capacity limitations.

But we don't quit we don't back town relent, that's just not our way of doing things last thing as I mentioned earlier, we'll be presenting at the 22nd annual Needham growth Conference.

The presentation will be a 12 noon eastern standard time, that's I think it's Wednesday January 15, our presentation will be available via webcast in our in our parks web sites. So we suggest you listened in and look at that presentation. I think that's I think we have been every Needham conference at the first one so this was 20.

Two for us.

That is the and our presentation worth of thank you slide slide 16, so operator, if everybody still listening and we'd be happy to take some questions of course as a reminder to ask a question you will need to press star one on your telephone.

John Your question please press the pound.

Please standby, while we compile the Q and a roster.

We do have a question from Sarkis Sherbetchyan with B. Riley FBR. Please go ahead.

Good morning, Brian and met and thanks for taking my question here.

Sure.

Good morning, so lot of yes, so since a lot of a important programs are ramping simultaneously I'm curious as your seemed designed or implemented a more repeatable process for some of the pain points you mentioned.

And okay, I think it just kind of perpetual payson away, but I mean, I don't be too much of a smart Alec I think the best way can answer that is that.

We're learning as we go and we're getting better and better at these things as we go I don't want to tell you. There is some kind of formal process.

But I think we're getting better at these things as we go.

Clearly we've been in uncharted territory.

Especially for last couple of years, when things started to really wrap aggressively but but the thing is I want to emphasize it it's such a size thats the whole industry and maybe I'll make a wrong about this maybe its Americans and you say, but I suspect were probably doing better than most in terms of our ability to wrap and keep up with the.

The ramp schedules.

In recent I'd say that is because I know from the supply chain people of our customers that.

They're having a lot of difficulty with some of the ROE suppliers, just keeping up.

Got it thanks for that and I think you guys had a pretty good job on on disposing some of the estimated manufacturing capacity.

Yes, if I kind of step back and think about as the facility comes online.

What are you.

Kind of doing differently in in that facility or planning to do differently in that facility, where it could kind of ease.

Some of this strain or pain point.

Oh, you mean, the new facility.

Yes, I spoke well located equipment.

Good question the existing facility, we were going to do that all over again, we would we would designed equipment differently that equipment designed a way back when I guess in 2008 and.

The F.B. programs, where even really be considered at the time it wasn't something that was very much on our radar screen.

Quitman debt were we ordered has been designed for today's needs. So it's.

Much more capable for the the production needs are today.

And you noticed that we're looking I don't even a higher capacity output. There are things, we've done which are a little bit confidential in terms of design machine, which will allow the machines run faster machines run faster as well.

These machines or continuous process machines. So the key to productivity, obviously is uptime, but the other key is the run speeds.

So I think this factory is going to be a much more optimized it you know.

Actually we struggled a little bit with the existing equipment just because it was not designed for what we're doing today. So much. So we obviously, we don't use as an excuse we make it work one way or another but the new equipment, which designed for today's means not the needs of 2008.

So I think it'll be a lot better and they also being much more capacity. So we'll have the ability.

Not that you're running at full capacity, which you know makes you operation what were efficient Houston you can plan you could do longer runs you just have much more predictability and your operation is going to be much more efficient as a result.

Thanks for that and one more for me and ill jump back into queue. I know you discussed a recent development major private space company.

And our Eason progress have you ever maybe you talked about what that NRT touches upon or what you're involved in there.

No I think we're probably pushing to limit bye bye.

Saying, what we've said and we do that because you know we think are shareholders and title know something about this way I'd be reluctant to provide any more information at this time to.

Go maybe like said pushing a little bit too much as to what the.

The OEM would find acceptable.

Understood. Thank you I'll hop back in the Q.

Thank you.

Thank you again, ladies and gentlemen, if you have a question at this time. Please press Star then one.

We do have a question from Christopher Hillary with Roubaix capital.

Please go ahead.

Hi, good morning.

Hi, Chris How're you doing.

Great. Thank you.

I wanted to ask with some of the slowdowns in the broader aerospace supply chain, you think that will help you.

With some of the supply issues that you faced during 2019.

I'm not sure I follow the.

The logic of.

How will.

Well go down as.

With that said at the recent Emax pause when would that help you get more of the.

Input materials that youve seen some shortages are here here and again it. Okay. So we talk about carbon fiber quite a bit.

And.

Im pretty sure that the of the carbon fiber we users not also use on the 737 backs.

So but of course, there's a lot different components to supply chains.

I'm not sure Thats going to help us in shorter.

Term long term that's a different story, if the 737 them action on never really recovers to its original kind of levels then to supply chain may adjust right to where the businesses, but short term you qualification periods take a long time to qualify.

A supplier that was previously supplying are currently supplying them into the Max.

On a no program is very time consuming and then kind of doesn't make sense practically because we're six months from Dow whatever to 73 sub reinspect up when entering into long term something different though like I said or could be a fundamental adjustment to the whole supply chain. If the share it lets say the market share between them.

Next in the grew 20 in the coal Mac adjusts, but I don't think short term it really will help us too much.

Okay, and then obviously.

Very distinguished track record on your capital return that you highlighted earlier I.

I thought it might be and.

An opportunity to ask.

Are you seeing many opportunities to do some bolt on type acquisitions to kind of grow your portfolio or give yourself some or.

Assets that would help you as you go through this you know growth phase.

We're looking out to a few things. We're also looking at some projects you know we haven't we didn't mention it for last couple of quarters remember, we're talking about a potential JV in Asia that still something we're looking at says a lot of different ours, we opened a fire right now.

We're also hoping that maybe the valuations will start to come down a little bit too. So we want to keep some powder dry.

We still feel that valuations or maybe a little unrealistic and.

Im not does not like field in terms of M&A and up business valuations, but.

But some people are set to meet people there.

Hard to field that maybe.

And then not too distant future some evaluations will come more in line with what might be more realistic or appropriate.

So we don't have anything imminent.

Uh huh.

That's why we want to retain.

The.

Back to in them that they'd like to $90 million cash.

But we still want to keep some powder dry because we think there are opportunities and they will continue to develop over next couple of years, but we'll see no we're not going to.

I think you notice about us we're not going do an acquisition just to do an acquisition, we don't do that.

It has to be right for park and ripe for park is complicated SP right for park in many different levels of SP. The right kind of company to be the right kind of location as to be the right kind of products, what kind of technology. The right kind of culture and of course, there has to be available for sale at the right price.

So.

We're not just outperform bankers and say look we want to get and spoke to that focus this process that process.

We've been in a couple of processes, but we know why can vary much of this would maybe too much information response. The question reasonable like them is because the bankers try to rush you along.

And obviously, you're trying to get the price up but for us to do an acquisition. It's a series thing we want to take or time, you want to spend time with management, we really want to understand it's just the writing for park. We do we do an acquisition were taken were going to honestly for 20 years. So maybe everybody else is getting rush through the conclusion, but when we get these processes.

Sounds good just back out and so we're not it we're not able to do this piece, you're not able you're not providing us with the access that we need.

Then I guess, what one last one with a longer term horizon what are some of your thoughts on how your.

Manufacturing capacity is developing do you feel like the current plans encompass.

What you foresee in with the five or so your time horizon or do you as you have both the growth that you've booked in somebody's development programs. Do you are you starting to says that you might need.

To start planning.

To start planning on increasing the footprint again.

Everything we have in the table now was covered a but I know if you remember this so I think we discussed this maybe a I don't remember a couple of quarters ago. We first started talking about the expansion remember that there was a comment I think it's actually in our company presentation, which will be updated after needed presentation that for an additional investment of 45 million.

Dollars.

In this expanded factory, we can we can provide to other made $50 million that capacity. So it's actually space provided the new factory for another line.

So would be pretty easy to increase our capacity for other hot melt or solution, depending on which direction we want to go with.

By a significant amount it wouldn't be the same thing is building a new factory just like ordering equipment, we already know how to where the equipment and have any equipment installed. So we do have that flexibility. We built in for just you know I think we are getting at not sure. We know what we have now we can cover not sure what will happen in future.

Okay, great. Thank you for your time.

Sure.

Thank you again, ladies and gentlemen, if you have a question at this time. Please press Star then one.

Speaker Im showing no further questions from the queue at this time I'd like to turn the call back over to you for closing remarks.

Okay. Thank you operator, thank you everybody for listening in.

In a pleasure.

Matt and I quality time, you want.

Other questions.

And less new courses have a great year, we wish you and your family all the best very good luck in 2020 Goodbye now.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.