Q3 2021 Park Aerospace Corp Earnings Call

Yes, your presentation all lines have been on mute too.

To prevent any background noise. After the speakers from Mark there'll be a question and answer session. If you would like to ask a question. During this time simply press Star then the one key on your.

Telephone keypad, if you would like to withdraw your question press the pound key.

At this time I'd like to turn the call over to Mr., Brian Schwartz, Chairman and Chief Executive Officer. Mr. Shore, You May begin your conference.

Thank you Catherine this is Brian welcome everybody I have with.

It would be about star burst beautiful happy new year to all.

So first thing is that are we announced for earnings just for you probably know that your water well typically varies release booster instructions on how to access the presentation were about to go through and I would recommend you do that because it will make the.

The discussion much more meaningful to be able to go through the presentation with us. There's also supplemental financial data attaches appendix one two of the presentation for truck turned out as you know we reported cartilage. So often we're not here with his presentation for motor Hype. The company. What we're trying to do is cover things of why we believe which would be of interest.

You and provide perspective that we think will be useful to you our shareholders and understanding our company and our cash.

The dynamic Oh, we can't cover everything each quarter. Unfortunately, it just doesn't touch possible. So we have to be a little selective no. Notwithstanding that we have a long presentation. It could take 45 50 minutes for just want to be worried that brace yourself are there were a number of items, which require a little more discussion because true or not.

For the sole obvious on there on the surface and then after we're done and go through the presentation. Then of course, we'll be happy to answer any questions for myself. So why don't we get started and where we go to slide two slide two is our forward looking disclaimer. If you have any questions about are just let us know from cost later of course, we get right to slide three okay recurrent.

For the numbers lot of stuff going on to slide Oh, let's try to go through it so indeed.

The third quarter sales as you can see were 10 million 320, 372000 or gross profit or two moving to 553000, a gross margin of only 24.6% a that's a low as you can see from our history and will discuss touches from a minute and we have an EBITDA of a 1 billion for it.

80000, a day if you look at the top line for the first three quarters. It certainly shows the effects of the commercial aircraft downturn and also did you start from we've been talking about for quite a while now so.

So what.

What do we say about this quarter Q3 during our last quarter conference call. We set our sales estimate was 10 million ish and redeploy estimate was 1 million near shore not for to be cute or placebo dished up what we say is we're saying to you. We really don't know there's a lot of uncertainty we don't want to give you more confidence than we have in what we're telling you happy to give you.

You are thought we'd want to understand how much confidence we have for telling you. So it looks like we came in within the range for our top and bottom line meeting our sales and EBITDA up maybe a little bit ahead of let's call. It within the range remember a forecast philosophy. We cover this often but I think it's worth just going over again is our forecast were not.

Playing what we called game to give you a little noble number so a low number that saw a blower expectation. So we can beat it we give you forecast we are telling you. What we think will happen we could be wrong for we're telling you. What we think we'll have for not rounding up not running down. This from what we think is going to happen that's for our ability for us.

So done from what's going into the next let's move next item certain factors affect affecting Q3 in effect you for as well sales or margins, let's talk about that.

So.

Gee sales if you will cover this later on in the presentation are only 1.8 million no. This requires a little bit of for review of things we discussed net pay.

Previous quarters, which we'll get to a more detail later on the presentation remember.

We mentioned last quarter that we had reached an arrangement with aircrafts, which is the.

Our main customer a large customer I should say, which is a subsidiary of FC engineering, Singapore used to be a subsidiary of GE aviation, we sort of raising what I'm wonder, which we produced for certain minimum out for them every month on a jury is out if we produce below that amount. It would it would severely impact our ability to ramp back up but we need to ramp.

Back up we're quite confident that the comp that day, we comment on Eskom, we'll get to that as well.

What is it that minimum amount is in units signed dollars. So the dollar amount is going to change based on mix for the somewhere between 700, non or a thousand dollars a month averse small mouth, but that's what we say we need in order to maintain that critical mass and the ability to ramp up.

Remember we mentioned this last quarter that in September, though we were not moving to our freight or hot melt line because.

Because for taking adopt for major maintenance that was overdue. So in Q3, we only offered to the three months so rather than three.

One month punch, three maybe 700 and non under terms three 700 900 times two should we had only $1.8 million of GE programs revenue as you'll see later on the presentation in Q3, I know, you'll see you as well that compares for Q2 2.9 million we had three for.

Months of production at that minimum level.

So that affected obviously your topline.

And then a bottom line. So this is something else, we'll talk to you that we need to explain to you see of the perspective.

During the third quarter, we sold about we had about $2 million of sales.

And essential component that's used on.

Missile programs that are very critical missile programs. These sales work to the Oems to defense contractors. This component is actually produced overseas and it is it's produced by an ally it's not it's a friendly country, but nevertheless, the Oems defense contractors.

Nervous they want to have a supply of this critical component we have the relationship of supplier notice complicated, but bear with me. So we are asked to go by this this product, which we did and then sell it back we're not sold package. So in fact sold to the these Oems These defense.

Defense contractors. So there is a safe source of supply of this critical component and we did that so we sold this component to these contractors they own it now.

They can do whatever they want with it but the expectation is clearly that will be used.

Starting lets say next fiscal year to produce the composite materials for these missile programs. That's the pattern, but again, it's their product they can do whatever they want with it.

The expectation is that will be used by us to produce all of these materials for these missile programs, which are very low margins on that $2 million because we do market up we buy we market up and we sell it to the sub defense contractors at a fairly low margin no. It's actually good news because what we actually produce to the.

Preprint materials, the composite materials and margins are quite good but.

But for $2 million of revenue in Q3 that have very low margins associated with it. So we go back to that gross margin number 24.6.

That's probably the big picture in terms of explaining why those why that number is lower you look at the prior quarter, where the revenues were 9.2 million.

And the gross margins 28.6, we don't like anything below three but nevertheless, you look for Q3 and the gross margins, even lower with higher revenue. So we wanted to explain that to you start to go back through time, but I just want to make sure I understood that dynamic lets go into slide for top five customers always cover our top five customers for you.

Hey, aerospace at Aerojet Rocketdyne, they're both related to Pac three missile system, we have pictures.

That are associated with these.

Five customers, we spoken about this pack to readjust missile system before its Patriot missile index generation latest generation Patriot missile GTN Thats, a contractor for Sikorsky and many other customers.

We have a picture on the bottom right of the Sikorsky Seehawk.

Which is a program that we supply into.

Next item down credo, so they've been our top by quite a bit in the last.

By year, I guess, and we have a picture of the Valkyrie remember that we've mentioned for we believe were the main supplier for composite materials for all of their drones, including their tactical drones as Walter target drones.

Ill for interesting looks like they were sued previously.

Previously received an award from the US Air Force for the Skywalk program.

So that's a rush for wind up beyond and the last one is middleware for your structure system, we will embrace the subcontractors and again thats, a sub STN or aerospace our largest customer that's a picture for some 47, eight and I think to.

For the photography work is excellent I must say that use I took the pitch for myself and this is an anchorage shore. The airplane was landing skewed skiers down Lenny position.

A little over a year ago, and I think I was.

That's right the run all the revenues, except runway run was closer using one runway for Taco for landing. So I was one of the two.

Recall that for this guy landed.

I want to go into slide five.

So I.

And then sharing our pipe departure with you in the last few quarters like the very interesting.

Hopefully there and for me to so let's start with last fiscal year. This year.

For 2020 $60 million revenue you just see the break down here.

And then we felt for two this year year to date.

Q3 year to date.

And you see the Pie chart has moved around quite a bit military there is now 58%.

Well it was 35% last year commercial down to 35% was 47% last year, let's do a little math here just for the fun of it if we take 60 million last year total revenue and multiply that by 35% to military portion that's $21 million isn't approximately assets.

Thanks Vishal.

This year, where the revenue is $31.8 million, we multiply that by 50% and then we annualize that number let's just assume I'm not saying, it's true, let's just annualize assuming that Q4 will be similar to the first three quarters annualized at $24.6 million. So what's going on here, even though the down year, you see the aerospace business with growth.

Growth considerably probably on accident product, because we decided that we're going to focus on.

I said.

No. It for I think it's in aerospace for Understate, our military business is from even in the down year and we decide we're going to focus on military as we've discussed for the last couple of quarters.

So okay, what will be move or will keep us we long here. So at the beginning we have lots to cover slide six.

Okay. So we're talking about or a niche military aerospace programs.

As rich mentioned, we decided we're going to focus on a lot of our attention on military and ours I think us all for us for pretty well, we still along with a goal, but so far it's going pretty well. These are some of the.

Pictures or just some programs for on are not necessarily larger or smaller we just thought their programs of interest I think every quarter we.

We discussed a few programs that rod mill for programs and one of the top left to grade for saying that's something we're in qualification on.

The standard missile three system very fast missile I think goes Mark 16, 18, that's very very fast.

Yes, our 71, you know that airplane, so fast it's airplane I think still than it was over built goes mark for about 3.3, so very very fast missile.

And actually we're also in qualification that qualification a rocket system. That's used on the SM three in the us six as well.

The Boeing KC 10, extender. This is really a niche kind of thing you see that just kind of a special mission here or do you see the movie.

For the airplanes is refueling, but normally you would views refuel b 52, generics eighteens and military aircraft.

Adjusted for six story I'll try to go through quickly.

Specialty material and we also like a park for this program.

And how.

We got this program.

Legacy supplier. This is not a new airplane, that's they didnt want to do anymore is too difficult to travel and okay. Sinus off we are happy to do that we loved to hear those kind of things and somebody thinks something else too much trouble sinus off because those are kind of programs we like.

So let's keep.

Moving the Grumman.

To the Hawkeye G.

As you can see that's a carrier bridged aircraft early warning you see the big intent on top we do structural porch or using our material for that aircraft and we also have the predator here I think last quarter. We showed you. The global this is another drone obviously used for military purposes and.

We are neutral still into our structural components as well as our rate on.

Materials and you see the Pie chart. This pie chart has taken a military segment for this year.

Q3, your day and breaking up into these sub components. The common thing for US is we like the niche military programs and I'll look into going the big ones like the F 35 structures things like we'd rather do niche programs, where we feel we have something different something special something unique.

To offer which will and we also feel the ability to protect the business because of the fact for doing something a little different unique.

The case KC 10 is a good example.

Well, we keep going slide seven so now we'll talk about commercial so this quarter as I said, we can't cover everything we talked about military talk about commercial we're not going to talk about business aircraft leased in the presentation. This quarter, Jeff questions about it. Please let us know, let's talk about commercial this is a slide solar to slide we showed you the.

Last last quarter, so it's a little bit of review here.

We're talking about single aisle versus wide body aircraft, so trends already in place they bring soon while or new.

Aircraft that was before the pandemic why is that because people relative fly direct.

What do the hub and spoke thing if they can avoid it so.

Single aisle airplane aircraft for smaller aircraft are able to operate out of more regional smaller airports, whereas the wide bodies you are going to take hub. So Q1 to go from point to point you have to growth.

Stop at point see I guess, where the hub is nobody wants to do that if not necessary.

Now with the pandemic that accelerated the movement towards single Ireland, our opinion will have market for single aisle recovery for wide body I think that thats.

We say we state as a question, but it's I think it's clearly the case and again the pandemic and economic.

Downturn.

As certainly accelerated.

Movement.

Towards single aisle favoring single aisle versus wide body. So our opinion, if you want to be commercial aircraft, which we do.

We never wavered from that.

Even though the lot of bad news by commercial aircraft over the last year. We felt that this is a good place for us to be if you want to be commercial aircraft rush, we want to be in single aisle. That's our opinion other three major single aisle programs. The Airbus Athree hundred 20 family for aircraft for Leap One day engines to support from Ron. This is a very very very big program.

A very important program as a great program to be on.

Next one some through seven Max as you know in a centerpiece of Max is going to be certified and it's why we can so good luck to Boeing hope for works out for non-GAAP program, we have momentum I think no carbon emissions at almost no content I am aware of on that some 37 Max program and then the third single aisle as coal Mac non one non that airplane still in development.

Comex says that they're going to have finished the development certification, which in China. This year start deliveries at the end of year, we'll see if that happens.

But we think thats, a very important potential program for the future as well so in our opinion, we checked two of the three boxes. So most of the boxes, we want to check the threetwenty.

Yes.

Bye Bye for we think the big dog and 88 for 20 lot of variance to that covers a lot of ground from small to large.

So they have a lot of unique things to offer on for.

Fortunately because for the Max problems are way ahead of bonds at this point at least in my opinion.

So if you want to been single aisle aircraft. Those are two boxes, you want to check the boxes, which do check let's go on to slide eight now so what are we do a program highlight Airbus Athree hundred 21, XLR, that's part of that each one family. We're talking about very interesting program, you're just single aisle.

Range from very good range by 5400 statute miles she capacity up to 240 for just.

Lot of seating capacity and high density configuration expected to enter service in 2023 since two.

Two years from now that's not very far from now will it be a game changer well. It's a lot of price lot of people are writing about this a lot of people think yes. It will be a game changer why is that because it will replace wide bodies for many.

Many operations for instance, you know North America to Europe, where you expect to take a wide body. This would be a replacement for that wide body, but much lower costs. So there is a lot of excitement about this program and we're happy to be part of accounts for sure.

So unfortunately for Boeing they don't really have an answer for this airplane, it's kind of like the Sun 57, the Ulta sub 57.

Which is a single aisle, but.

Total technology and it really kind of stretched kind of version of maybe some through sevenx when looking for like that but they can't stretched to maximizing further so they can't use of Max is a platform.

Pete with this XL or.

And unfortunately bowling epidemic.

Airplane that was kind of targeting this market but.

My understanding is any way to just continue development on that for a while what their focus over the Max.

We believe park is ideally positioned maybe partly by luck, maybe mostly by luck and of course when aircraft industry book Whatever reason, we think right duly position of just what will take it no problem for us.

Slide nine let's go to slide nine this is a slide that we have.

We go through almost every quarter. It's just kind of review GE aviation jet engine programs are why we on those programs because.

Mmm, our large customer was until two years ago, a subsidiary for GE Aviation now there is to Tidier specialty engineering.

In Singapore, a large simple.

Singapore in Aerospace company.

So let's do this through this quickly we have a from price LTA through 2029 with this from am rest middleware for Aerostructure systems.

We also have redundant factory, which some progress we'll talk about that later presentation.

Its going on here if you look at the next item to central sole source from all these programs. So.

For a large aerospace OEM.

They're not going to be comfortable with.

A sole source relationship long from sole source for relationship for materials like this critical materials like this.

Where there is only one facility.

It's too dangerous something happened to our facility you'd be real problem for these Oems because the qualification.

Time frames for these materials is very very long so would it be a real problem. So that's kind of part of our arrangement with brass we signed up this long term agreement. We said sure we'll build a redundant facility for you know the good news is we needed for capacity to anyway, I think you remember or some you do and you might remember that about a little over a year ago.

Before the pandemic, we're talking about pushing our capacity already.

For existing facilities. So thats the good news will need for capacity as well.

Sole source.

For composite materials for engine to sales and thrust reversers for multiple emerus programs, we have the Athree hundred 20 family. The first for items for some 47 Weve already showed you a picture of that Thats not just for the cells and thrust reversers also infrastructure Comac nine one non we talked about that comment.

21, that's a regional jet it's.

So doing quite well it's sold in China, mostly and then global Sobi 500, with the pets for 20 engines top right. It says we're also making another component for that test for 20 program.

But thats from GE Aviation picture here is some 47.

Eight engine to sales Electus picture very much because it just shows you the size of the structure as you see the person's back from these are very very large structures may was our materials. So it's a very good program to for park to be because theres a lot of a lot of content for the cell structure.

On a park on to slide.

Slide 10, so here's an update on GE aviation jet jet engine programs. We've done this last couple of quarters, Let's give you. Another update first item day through 20 Neo family aircraft at Lowe's Leap engines. What is your best set well they were saying until recently there is due for your claims a month and it was interesting a lot of and.

It was for questioning on well, they're going to be able to sustain that and it almost seems like everybody was kind of getting.

Onto the.

For the training, where so many analysts were questioning whether Airbus could stay in the 40 per month and a lot of gloom and Doom news about the about.

Commercial aircraft in General and then also the sites for 20 program.

And well Airbus suggests I guess, you're right, we're not going to sustain 40 months, we're going to 47.

I don't know if that's supposed to be there in there in the face of the analyst position from Airbus, but as said at some point this year they've got a 47 increase the rate of airplanes, a 47 per month.

But I think more maybe more importantly, why.

We park recently received a forecast from our customers, indicating significant increases in units in calendar year 2021.

Going to the global 7500 with the passport 20 engine same thing. We recently received a forecast from customer indicating significant decrease in units in calendar year 2021. This also as index program.

Two.

For our lighting strike materials get qualified on home equity RJ 21, that's a regional jet that's being produced in China.

Reece Park recently received forecast from customer, indicating significant increase in units in calendar year 2021.

You see a pattern here.

Here's the Athree 21 extra day for 21, new very big seller very successful were plenty for bush.

Go on to slide 11, continuing with a different programs.

Back 919 with LIFO, one see engines coal Mac has indicated the intent to certify and the delivery of this airplane before the end of 2021 and our lightning strike for materials are already being used in the program. What that means is this is a net new product introductions for they are already producing some units.

Trying to get ahead, our production for an airplane certified and also to go through the certification programs. Some 47 eight.

Yes, especially airplanes for me, but Boeing has announced they're going to terminate production of the Quintin skies next year, but no change to production rates until then so rates are being reduced falling significantly junior producing this airplane until the program is terminals that just take rate total program is terminated.

The dreamer, but.

They just unrealistic, but kind of hold out hope for and maybe somebody will come in and order.

Maybe one of the Big freight company scores for companies you PS orders for more units before the production hands, but.

Thats, probably might be somebody doing much in assets, which will thinking slide 12.

So how did we get here, where we are now with GE aviation and GE aviation programs well of course, there was a significant downturn in the commercial aircraft industry and.

Early calendar year 2020, we all know about that as a result for the pandemic and global economic crisis, almost all news about commercial aircraft news for industry was very it was negative very day. This.

This is going to have to me their herd mentality that not a lot of conviction, maybe no courage another two or three analysts industry analysts said targeting very very negative, but everybody jumped on board. Okay. Fine to me Thats always a sign that look at the other side of the story.

And there is that capitulation everybody's now for fish letting it so negative will maybe something's missing something.

So next item, but we do not so we did for the we filed that Doom and Gloom news, but you know for park. It doesn't really matter too much for you as a park, we make adjustments on the fly we keep pressing for that's really all we know what to do.

As Winston Churchill I think once said when you're going through Hell you keep going you know, we're not analysts were not philosophers.

So we feel for head down and keep moving forward, we make adjustments as we need to make them.

But we never gave up commercial airplanes commercial aircraft, we did just and by that we didn't buy a lot of the news that was coming out.

From industry analysts.

Okay, let's keep moving on park made arrangements you talked about growth, but this first slide we made arrangements for aircraft for park to maintain a minimum monthly baseline critical mass production level to preserve parts ability to ramp up production when needed. This.

As our credit equally important to park in Amris. This arrangement went into effect probably true starting on July six major orange juice, but probably July was the first month that we start to comply or buy for this or arrangement. It ends up being about 700 $900000 a month.

Based upon like I said, it's really some the arrangement is minimum in the range for those based on units. So the units the dollar share in a very based upon the mix, but think of $709000 per month the range, but we entered into.

And that arrangement lasted until westmont until December but still want to 13 slide 13.

How do we get here continued so we spoke at some length Im sorry going forward. So we have to kind of review for perspective will be covered in west a quarter or two we spoke at some length. During our Q1 and Q Q2, investor calls, but to significant divergence from and mismatch between our agreed to minimum monthly braced for.

On production amounts what we just talked about and the then current.

And market requirements for GE programs of park is on the specific programs, which we were up so again, there's always new news about the Max Inotera would us and other programs, but we are focused on programs were wrong.

So.

And let's just go through some numbers again, it's a little too do you start to go back and review will have stopped but perspective for perspective, I think its probably important fiscal 20 RG programs our revenues were.

$20.9 million approximately 29 million, so just kind of doing some high level math, that's about 7 million per quarter.

We told you I think last quarter, what we felt these programs we were on for probably down about 25% to 30% based upon what the end market usage.

I was indicating.

The the programs themselves the airplane programs themselves.

So.

Okay.

So we thought well alright, if we take the 7 million dollar number we reduced it by 25% for 30% that gives us about 5 million for quarter, but.

But we're operating at less than half that looking.

Looking for last couple of quarters less than half that based upon that minimum amount again, so what the heck is going on here of course, its net inventory restocking.

And we knew that something we saw for wasn't ending up but didn't make any sense. We explained.

Again going back to what we believe many companies the aerospace supply chain, where do you moralizing survival mode, not paying attention to need to ramp up production would de stocking and we're very concerned about that still are we further explain during those calls that we believe the aerospace supply chain, maybe taken inventories do dangerously low levels. It's a it's a serious.

Concern of ours, because the from supply chain very defensive when the survival mode, not thinking about for future not thinking about wait a minute some of those non bacon sense youre going to have to ramp up some day wasn't really being considered in my opinion by some of the.

Members of supply chain.

So we said this last time.

An abrupt and steep ramp up by supply chain could be required when the inventory destocking ends because if it ticking timebomb maybe for one thing is for sure I. Thank you for doing the math demon Torquay Global zero. There is there's a limit to how much you inventory can be reduced average destocking that occurred right can't go below zero.

So, let's keep going here sorry.

14.

All right so.

How do we get here and now to compound the potential need for steepened abrupt ramp up because that mismatch.

The forecasted units for.

Third accounted for 21 for all GE aviation programs.

Have gone up in some cases significantly with the exception of some 47, which is flat. We just went through the program by program discussion.

He said everything's up significantly except from 47, so we had the stocking and Andy we have inventory being low and then the programs move up.

You see the dynamic so now what.

Now what is theres, probably a problem that the industry has at least are part of the industry. This is the global 7500.

We've been talking about over the past 420 range.

15.

So the ramp is upon us that's our belief Destocking has ended in most cases on most of the supply chain related to parks GE aviation programs inventories taken too low in some cases, that's our opinion.

So.

We'll talk about this later, but the reason I say most cases as we deal with from subcontractors as well for these so GE aviation programs, it's about 20% of our revenues go to subcontractors. They have a little rough dates are a day of a little excess inventory maybe at a million dollars, but the main supply aligned to embrace us no.

We think it's actually low.

So as explained just will review your rates are being pushed up the ramp is looking pretty steep just for perspective GH GE program sales for the following periods. We're now before we go into the numbers I just want to point out we're talking calendar years here I am sorry to have to confuse things that normally we talk fiscal years, but for this.

Purpose when you talk calendar year, because we have a forecast from GE aviation sorry from M. risk for calendar year 2001, we don't have a forecast for next fiscal year. So we've got to do the calendar year comparisons. This is just for perspective anyway count for your 1920 through 29.3 million GE aviation.

Non sales calendar year 20 last year.

Less calendar year 15.8 million, but importantly calendar year 20, less six months 5 million.

That's during that period, we are doing a minimal production from from July to December I guess, obviously, we can do that math for six months 5 million adjusted $10 million run rate isn't it 10 million like those that added approximately.

$800000 from a month baseline minimal.

10 million. So we got 29 million 10 million and list.

Six months, let's see gone so now we get to the forecast.

The calendar year.

Sorry, excuse me.

21 forecast for GDP and GE Aviation program sales based on a forecasted range. We recently received from the customer Amref approximately $24 million.

$10 million $24 million get the numbers may suit I'm talking about in terms of the steep ramp up. This is basically not this is not six months from now nine months for non $24 million. What does this mean, okay. So let me explain what we're talking about what we were seeing from our big customer, it's a forecast by unit and by unit.

Number. So this many of this program this month that month, they don't give us not dollars. It's okay. This month, we're going to build eight of these units were going to build nine of those students from going to build 20 of those units month to month for 12 months for Threeq detail forecast for us, it's very easy to convert that to dollars, which we know how much material.

Growth and beats unit for very well and we know what what the fuel Saul for us, it's very easy to convert that to dollars. It's actually we say approximately 24 million we have a more precise number but it's about $24 million. That's how we came to this number what does it not me. This is not a park forecast, we're not ready for that yet you know, we're not quite ready for that.

We're sharing information with you as you have a perspective on the ramp we're talking about but we're not providing you a park forecast for this time and we'll go next simple pages will explain that were sole so things were not sure about but we don't have confidence and to give you a forecast for the next year. So we're not doing that this time flow.

Lets you go it let's talk about.

Let's go to slide 16.

So.

What are the risks and factors potentially affecting that $24 million for cash inventory subcontractors, we talked about that it's probably about a million dollars and probably to be absorbed and normalized by let's say April timeframe may timeframe.

Certainly by the end of our first fiscal quarter.

This should be an or were you.

Window. This if the subcontractors there's no excess inventory, we believe in our direct supply line.

Yes possible inventory build as a result of ramp so right now there is very minimal inventory and our direct supply line to Emerald, Yes, we think it's probably too little but its the amount that was needed to support that $10 million business level.

Not $24 million. So it's very real possibility that the inventory could be built up so thats going the other direction for us obviously more inventory that's going to drive sales up a lease while inventories being built up we don't all that will help and I'm just kind of sharing with used considerations.

Total Monday, youve concerns possible possibility to global economic recovery stalls that obviously more effect.

Commercial aerospace.

Global economic recovery is there then.

People can be flying less and obviously, they're pandemic reversed vaccine risks, a political complexities and risk the very dynamic and complex.

And for right now, which we're not commenting on we're not political analyst except to reference that do a lot of uncertainty and that creates risks. So we just want to flag that we will have an opinion about it. We're just saying there isn't there those are risks GRP geopolitical international trade risks pretty dicey stuff not just with Chinese with Europe. So you never know.

All that is when a flag for these always our concerns and issues.

For.

For the type of business, we're doing which almost in every case exit will maybe to some 47, a little exception every other case, probably realize credit, but an international trade.

And export you us export controls against China affected potentially affecting.

The Comac RJ 21, a nine one non it releases, but potential use or potentially affecting.

The the forecast it's a recent event I think the last last month December Theres, some action, but it's certainly not decided and it's just something we're flagging for you, but if you Wes.

Impose very strict and stringent.

Controls.

Export controls.

It could definitely could affect the RJ 21, the comac barnwell non U.S so western.

Made engines.

So let's go on to 17.

So are we taking so long try to move as quickly as possible. So.

The ramp is upon us from just continuing here.

Well. These are just more factors are more risk factors possible setbacks reissues for specific programs Park design.

Maybe the Oems will push outs or forecast another possible to use the Oems are customers increased a forecast I'm just going to touch just thrown side. You are completely. There's you know talk will maybe for increased this program that program nothing we're prepared to talk about but there's talk on both sides of the equation.

Possibility supply chain supporting the GE aviation programs, which park.

Which park is on a struggle to ramp up that's a real concern, possibly emory assets apart from not able to ramp up production as quickly as needed. So there's two kinds of things we're talking about here one is.

Suppliers that supply directly demarest from then yes suppliers will supply chain and aerospace. So there were some reason.

Let's say, there's nothing related to Emirates for park.

There are components that GE aviation can't source or even the Airbus can source that could affect the whole program. So it's just something to be concerned about what programs are being pushed up pretty fast pretty aggressively pretty steep ramp and maybe a supply chain that isn't necessarily focused on ramping up as much as they need to be herd mentality.

That just means that sometimes you get a herd effect wherever it is negative sometimes arbor is positive. It seems like it's turning positive now for us that means we have to watch out and pay attention not get caught up in herd mentality.

Okay. This is the air Jay the regional jet Titzman, China, Let's go to slide 18, Okay. How we'll park respond to them. This ramp ups the steep ramp ups all about our people that's already from a whole.

Our current head count as one of seven we plan to add about 15 20 people to accommodate the ramp up.

All new people need to be trained because we didn't labor day off we got don't weighted to call back. So it's a process.

Alan.

We do right, we say, we didn't not lay up antibody against our religion.

It is for a much accounts or religion now when I say that I always have to say well, we're not GAAP. So we can't guarantee we'll never do a layoff, but it's something we're very very very much against we just don't believe in that and why is that it's because we want our people to feel and believe that they can build a future with us and you can say whatever you can say, where we want the net you lay off for a bunch of people it's like.

Well what happened to our future.

For important for park for important for our people and it's also a very good business in my opinion. So we do not add people casually Park. We had we had somebody would think okay. We're in this person for life. So we got to be careful we don't want to just go easily go higher 20 people budgetary well doesn't work out we'll we'll lay off 10 of them total we're not going to do that so.

Sales to be careful about how we bring people on these would overdo it and have to lay people off.

We here, we see companies a hard thousand and then a day fire lay off 1000 people.

It's not for US you know it's not for US it's not those are human beings those are people that.

Really can make a difference for company a company that has real dedicated people. That's a company that has a lot of power for the company, whose people just kind of punching o'clock I don't know.

No that's for.

Not for us for anyone timing.

Timing will be critical in other words were not just go higher or 15 20 people today. We're in the process. We're hiring some people we have to do this for intelligently we have to.

Pay attention to adjust as we go.

We reported we hired 20 people now would be chaos me for it to train always people.

I would just.

Create chaos like us.

We need to be very flexible and agile at park, we make adjustments in the flies we don't keep pressing forward. We don't stop your group. So we're not going to stop okay, let's take a month or two to figure. This out no. We quickly come up with a plan and we move ahead with plans and we make adjustments on the fly boost from what our what we plan the circumstances are going to change to some extent so we've got the right.

We will pay a lot of attention make the adjustments on the fly that's how we do things at park pop.

Marks customer flexibility program I mentioned before our recent a whole our current participation is 83%. This is just a great thing for park. So wonderful how this programs across training program. Most everybody's involved with it it gives us so much flexibility gives us so much better ability to respond to something thats around.

But so you have a true your crew, let's say for guys in through crude Thats, a very complex machine to run what are you doing.

For for people just Okay give me one week of training. Good luck. Non then worked our way.

Three months then the new people have integrated into accrued that has experience you can't just take for new people put in total and treaters and even in three months doesn't work that way. So the great thing. We have is the customer flexibility program. We did ramp up let's say one department, maybe another part but its not so busy those people are you cross true.

They could start today in that department.

No training, they're already certified.

We get certified.

So you know people get a little bit of increase in paid to get a little bit of a premium and pay when they are certified to do another job function, but.

But they have to train they have to take the test so lets people ready to go with a great program Gulf's park be very flexible very agile.

Ultimately our great people are all races in whole.

That's so were very very very fortunate for special very privileged to have such great people such day indicated people. It really makes the difference between what park is and what may be some other companies might be let's go on to slide 19.

This is our financial forecast slides, let's start with GE aviation.

To review you can look for yourself with the first three quarters to speak for themselves Q for we're forecasting 3.9 to 4.4 million 3.9, Thats Whats books, we start there and say, we're not sure, but maybe a little bit it would be a little bit more so we're talking 3.9 to four point for look.

Look at the last couple of quarters, Q2, and Q3, but that was really running out at 800 $900000.

A month rate remember Q3, only two months for production.

Now.

No two.

Interesting because when Q.

You did or to Q2 call. We predicted about one half million for Q3 came in at $1.8 million. That's just that's we're not getting credit for it just how just how things worked out.

In our Q2 call we predicted about 2.3 to 2.4 million for Q4 now were up considerably with the restaurant now for $3.9 million to $4.4 million, it's still not a $24 million level low 24 million, let's do the math, that's about 6 million a quarter right divided by for we're not anywhere close to the 6 million. So.

So remember we've got a forecast by month, it's not just for the year. So there is some ramp up that's involved.

According to the forecast we received will be at that level that $24 million level, which is what assets 2 million a month right.

April we'll see if that happens work that we gave you all the risk factors not sure what's going to happen and then results for the subcontractors inventory.

Don't forget about that but again thats should be pretty much normalized by the end of the first quarter first fiscal quarter.

So, let's keep going here, let's talk about the for our forecast for the whole company.

We'll give you the history here, which you've already gone over our forecast for Q4.

14 million to 14.5 million sales 2.3 million 2.8 million EBITDA.

So again, we got to stop and explain so certain factors affecting Q4 sales and EBITDA. So first of all as you can see that GE program revenues are up quite a bit from prior quarters Weve.

We've discussed at some length, but remember we're talking about the essential component.

That we sold to the defense contractors for missile programs. In Q3, I think you said is approximately three point charge Fox approximately $2 million grew three 3.5 3.5 million for approximately 3.5 million in Q4, so that drives the top line up but remember quite.

Well margin on those sales, we buy that product from this overseas supplier that.

We sell it to the contractor.

This component.

Small markup, but we actually end up producing new material sets, where the big margins. The good margins come in so it's important understand appreciate if you look at the numbers you think.

Oh, you're talking about compared to Q1 for instance, you're talking about much more topline, but the bottom line is that much better or not to say that that's why we need to explain the details here, let's go on to slide 20.

Parts finished forecast estimates continued so we.

We would true as you knew as you know rather our.

Our long term forecast.

Let's see during our fourth quarter conference call Investor call last year.

14.

One will be able to reissue that I'm not sure.

We may be able to give provide you. This is may be able to provide you with a for cash for the next fiscal year for still 22, when we now for Q.

For earnings I doubt were going to be comfortable enough to give you like to three for your forecast for maybe a lease for the year, we will see I'm not promising on that but we're hoping to be able to get there is.

As far as our forecasting is concerned long term forecasts, we believe the fundamentals are still in place.

It's just that things are pushed to the right.

We will go back and look at that for cash is when will you get back into.

Into those numbers and not sure elements pushed to the right.

But the other thing I want to mention is that one good piece of good news, it's Brian just getting back to the forecast now we have the better input emphasis on military. So if you look at the let's see the Pie chart at the bottom right just for reference.

The commercial aircraft segment, that's going to grow as the.

Commercial aircraft programs ramp up as we discussed that will grow.

That's not really something we're driving that's something that the market is Brian. We're just lucky we're under why programs, maybe some little bit more luck, but a lot of it's luck when the right programs, but the military part of it. That's something you are driving so we intend to keep pushing that up to push for that up pushing it up we're not looking for the big Grand Slam.

And with military looking for more niche programs. So its a lot of programs not one or two lots of programs will push that number up for feel very good about that so.

So much I think that covers it for a long from forecast, let's go on to slide 21, just a quick update on sorry that will go on so long on our expansion total budget $18 million spending as at the end of Q3 $12 million approximately 6 million to go we expect completion.

During the first half of this calendar year do you see the pictures that are updated the first time, we showed you a picture of the inside of the facility actually is.

As you are re freezer. It so I think technical term for it is huge for big.

Slide 22.

Okay different topic here, we uncover additional while our balance sheet cash and acquisition perspective cash dividends that we paid a cash dividend for 30 years.

Six consecutive years under an uninterrupted never skipped a dividend to reduce the dividend since fiscal 2005, we paid $542 million of cash dividends 542 million $26.45 per share.

I guess my opinions that the lot of them money for us will come from like Park.

So let's go into next item that we did this cash math thing before in the past. So we're saying, okay. We start with $117 million, that's our cash and marketable securities. You end of Q3 people were shipwrecked 16 million.

Sorry.

The remaining transition.

Taxes don't want payments this relates to repatriation of foreign cash dissipate over five years. When are the question. It's something we already are rush, we're saying, okay that money spoken for 6 million remaining on the accounts expansion. So we should track those two numbers you get to $95 million. Obviously this is just kind of a conceptual analysis. This is how we think of it in turn.

For Lee So we are sharing with you obviously, there's a lot of things that affect cash for the daily basis up and down. So we're not giving you a cash flow prediction range like that we're saying this is how we look at our cash situation Park also as long term debt. So what about M&A would about acquisitions.

What's our perspective, so the major opportunities to buy businesses that distressed values and not really materialize in calendar 2020, before we said we thought it might what happened.

So what we're told we think is very much what the fed so why is that companies that were distressed companies.

We're able to hang up for they Didnt Werent force to sell variable hang on because they were able to access money. So cheaply hang on until business got better so if they're going to sell they could sell at a better price.

Very limited number of businesses offered through banker led or managed processes actually non that I can remember in last year that we are involved with.

What's the potential outlook.

So what that start with potential acquisitions do we look at and last calendar year, we looked at a few actually and some pretty seriously. We did due diligence none of them came through banker processes are all nichey kind of businesses. So some relatively small they came to us either through industry contacts or maybe one case to a customer call.

To us and gave US a lead on the company that we might want to take a look at but nothing was right for us nothing panned out.

So like I said, we did some due diligence even significant due diligence in one case, but ended a day, which is to say that wasn't for us it didn't pan out so we moved on.

What about the outlook for 2021 day bankers say that will be much for activity that 2020, but the valuations go up so obviously what happens lets move on to our last slide 20 for park.

Parks reflections on troubled World a world has been badly damaged and as a troubled place for this time.

Park, we have had our own share of harp regular strategy.

But a park, we do not quit we do not give up we do not relent.

We continue to grind and press forward, that's really all we know how to do.

Park is a strange and unusual company filled with very wonderful and special people.

And so we're not like the others, we don't know fooling around here, we're not trying to just get by park. We play for keeps the last thing I'll quickly cover as this is.

Our shipping receiving crew I think in the last quarter. So we featured one of our better crews.

Left right you got Lucas Shawn Moon for Mando this mile John Lunas the supervisor.

Really great crew and what I can say about them.

We're lucky to have them something needs to get ship, it's going to get shipped.

So I think what we'll do since we're running so ladies will.

Yes, chip the rest the comments and go to questions. So operator.

Thank you everybody for hanging in there to extent you have operator, we're ready to take questions at this time.

Thank you to ask a question. Please press star one on your telephone to limit.

No for your question press the pound again to ask a question press Star one.

One moment, while we compile for Q and a roster.

We have a question from Brad Hathaway with far view your line is open.

Hi, Brian Thanks for the time and thanks for all the detailed explanation much appreciated.

Thank you Brian quick question on the M&A.

Just to get a little more color if you could talk about.

What how why you path and for living you passed on in the last year you know why they just weren't right for park had just understand more exciting some of your thought process. How you evaluate opportunity decide they're not a good day.

Well I'll talk about a two of them and they are different reasons. So one was sub reported would we look really interesting to beginning to be seen Brian nichey, but as we dug into it more we realize we discovered that the market was very closed for a little opportunity to grow the business. Our net it seemed that it definitely would require.

Net investment.

Maybe now would it be.

I'll be inclined, but it maybe was from neglect to little bit, which we didn't mind, we're happy to put some money and invested in but the thing that really got us hung up with the upside we just didn't see it there in the market was pretty close another case.

Small business is interesting business and.

We were concerned that the customer concentration was very very high.

Hi.

And also you know the expectations for the owner were where we felt were quite high and Thats. The orders right. They can decide whatever they they wonder side regarding valuation but.

That ends up being.

Big disconnect and Thats why the discussions were ended these were not auctions. They weren't part of processes that are both one on ones and a couple of things we continue to look at.

But those are kind of examples but in both cases there. The reason we didn't continue the reasons were different.

Understood Great and so you mentioned looking forward into calendar 21, yeah. There is suggesting that we more business is on the block, but also valuation expectations will be higher I mean, the company for those two things makes you more or less optimistic about finding potential deal in place for anyone.

Yes. It is.

Excellent question music.

Oh optimistic obviously, because there is going to be more activity.

Thats a good thing.

The Conservatives valuations and we talked about the herd mentality now for everybody's getting on this kind of for the mindset that things are going to.

Maybe going very well in the future not just with aerospace the let's say the economy generally.

Then maybe there's some of that irrational exuberance that creeps into People's thinking.

We certainly felt we saw that in the past revaluation.

Didn't really make sense for us so we'll have to see we intend to be active we have the cash we intend to be active.

For Park, we always want to key for our head on sales grew at a strength and not get caught up in the mob mentality or herd mentality, where everybody else is doing it. So we don't we don't see the value, but everybody else seems too so we.

We need to get on board, we must be missing something were very reluctant to kind of buy into that thought process.

Understood great well, congrats on making it through the worst portion and looking forward to seeing a better environment for you at least 2021. So thanks.

Thank you Brad happy new year.

Thank you again, if you would like to ask a question press Star one.

We have a question from Brian Glenn with.

All caught Sq investments your line is open.

Hey, Brian Thanks, again for the very transparent walk there was always and happy new year.

Happy New year, Brian.

Thank you. So you mentioned adjustments on the fly early in the presentation and just wanted to see if you could take a minute or two or three to talk about company culture as a competitive advantage. So specifically two.

Two things that kind of came to mind when I think about it our.

Some of the niche programs that you guys focus on I know they have volume fluctuations from month to month or quarter to quarter and then the second thing is.

What you guys are doing now and over the past two years, which is earning a spot or watching on to some of these programs that are still in development and I.

I know the aerospace industry might be I don't know what the norm is six to eight weeks for turnarounds on prototype stuff I know thats overly generalize and maybe it goes back to your electronics heritage, but my understanding is you guys. Just work on a different pace in terms of doing things like that and turning it around to a customer whether it's a commercialized product are developed.

[music].

So thats a big question our culture.

Yeah, well, so I guess, we could say a lot of things by our culture. So we're a small company we're not bureaucratic.

A lot of passion among our people lot of dedication commitment and we moved quickly we're not at the politics, we're not into who's right who's wrong, or we wouldn't have Blake clicks, which the company the whole company is really.

No company moving all of people company, you're focused toward the same objective, which is a better things for park.

So we do have the ability to move pretty quickly people gets lined up and focused and get to work on different in different directions pretty quickly we will make an adjustment find we're moving in that direction.

So grew so I think it's pretty good in terms of flexibility and agility.

Based upon our culture.

We also could be relentless I'm not sure, but there's two six day weeks for aerospace aerospace.

Qualification cycles or that could be quite a bit longer.

But they vary some are much longer some could be shorter depending upon the situation.

When I mentioned this regarding the KC 10, which is a small program, but it doesnt matter, we love it when people competitors are.

Our sales are not interested it's too difficult too small too much trouble no boys sinus upward there were there and to me it's amazing how some of our larger company competitors for walk away from program will be on a program for a while they say they want to support anymore.

What do you mean for sport anymore, we take on a program or a customer it's like a like a and employees.

We don't live in divorce, where Mary for life.

We don't walk away from customers when a walkway from programs. We just don't do it. We've had issues were may be one of our components. We can source anymore. So we have to qualify or getting another component.

But we don't we will just walk away from program to say well, we don't do it anymore, we got bigger fish to Fry for something like that we will have bigger fish to fry.

For us we want every customer to feel like they're the most important customer we have.

Thanks for that that's all.

Back in 2021 thereafter appreciate it Brian.

Thank you from a much Brian happy new year.

Thank you.

Again, if you would like to ask a question press star one.

And I'm showing no further questions.

On the call I'd like to turn it back to Mr., Brian shore for any closing remarks.

Thank you operator, and thank you everybody for hanging net we actually went over an hour this probably bricks a record.

So thanks for bearing with us happy new year to all of you and please give us call. It give us call anytime you like always happy to talk to our investors. Thank you have a good day goodbye.

Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

[music].