Park Aerospace Corp. Q4 2023 Earnings Call
Speaker 1: fillswitch you
Speaker 2: you
Speaker 3: Most of thez you
Speaker 4: Good morning. My name is John and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. fourth quarter full year 2023 earnings release conference call and investor presentation. All lines have been placed on mute to prevent any background noise.
Speaker 5: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, please press star and then two. Thank you.
Speaker 6: At this time, I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Thank you, Mr. Shore. You may begin.
Speaker 7: Thank you John and welcome all to our part so...
Speaker 8: fiscal 2324 investor conference call live with me of course Matt Farabar a CFO as usual We announced our fourth quarter earnings this morning So you want to pick up on that if you haven't so far any earnings released our instructions as to how you can access the Presentation that we're about to go through you can get on our webcast. It's also on our website
Speaker 9: I don't know if you noticed, but for our standards anyway, the presentation is a little bit shorter than it has been recently. I think it's about 40 slides or 39 compared to over 50, maybe 55. But there's a lot to cover still, so it may still take the same amount of time. We're trying to take a little bit of a different approach this time. We're going to focus less on programing.
Speaker 10: on that information that we tend to cover quarter after quarter. But like I said, a little bit of different focus we're going to try this time. We will cover the numbers, but then it will be more – this presentation will be more on our outlook, something new we haven't given you before. We'll talk about capital dividends and we'll talk about recent announcements.
Speaker 11: So Matt and I will then answer after we're done with the presentation, going through the presentation. Matt and I will be happy, of course, to answer any questions you might have. So why don't we get started? Here we go. Slide, let's go to slide two, our forward-looking disclaimer. Just let us know if you have any questions about our forward-looking disclaimer. All right.
Speaker 12: Go to slide three and we have a little table of contents here, the presentation, supplementary, financial information in Appendix 1. As you know, we normally don't cover, go through that information but let us know if you have any questions about it. I'll give you a little bit of a teaser here. We have a photo of our new film line in production. We'll talk about this a little bit later but if you didn't notice from...
Speaker 13: million five thirty gross margin at twenty eight point five percent as we always say we don't feel very happy when the gross margin Slips below 30 percent or not. So pleased about that EBITDA just EBITDA to me to me and six two million six hundred twenty five thousand so
Speaker 14: What do we say about our Q4 during our Q3 investor call? We gave some estimates. Remember our forecast estimate philosophy is that we tell you what we think is going to happen. We don't pad it. We don't give you a lower number so we can beat it and become heroes, that kind of thing. I know that's what most other people do.
Speaker 15: But we just don't think that's appropriate for PAR. So sales estimate, it was thirteen and a half to fourteen million. We barely squeaked in at the bottom end of the sales estimate, but the EBITDA estimate was three million to three point five million. So we came in considerably lower about, what is that? Three hundred and seventy five thousand dollars.
Speaker 16: below the bottom of the range at $2,625,000. So what happened here? Let's discuss that. Why did we make, the obvious question is we made our sales number, why did we make the EBITDA number? So we should go into that, and we will. And let's go to slide five so we can begin that discussion..
Speaker 17: probably think we cover this stuff every quarter, it may be boring to you, but it's real life to us, it's a real life day to day struggle and challenge for us dealing with these things. Now we keep hearing that supply chain stuff will get better, is getting better, we haven't seen any meaningful improvement yet. And why don't we get to the Airbus A320 ramp later on in the presentation, maybe we could think about supply chain and how well it's doing.
Speaker 18: because that might be a good proxy for the supply chain. Let's go to the next bullet item. This is important, this is a little bit new. We're getting better at managing the challenges by building inventory where it's possible and appropriate and providing suppliers with longer lead times where it's appropriate, but it's still a very challenging and difficult situation.
Speaker 19: freight disruptions and unreliability, we'll give you an example of that. In a second, ongoing staffing shortages. This has not gotten better for us, continues to be a very difficult challenge for us. They said there's full employment in our country, but that's because so many people left the workforce, which to us is a real tragedy, not only for us, but for the people whose, you know, kind of lives are lost and drifting that just have left the workforce and probably are not so capable of coming back to it.
Speaker 20: It's very sad. What will cause this problem to improve? I'm not sure, you know, with the full employment situation, but a lot of people say what was needed is a pretty good recession. So it hopefully doesn't come to that and we'll see what happens. I guess I won't comment anymore on that right now. Let's go on to slide 6.
Speaker 21: Now, here we go, a total mischipment in Q4, approximately $1.4 million. That's a huge, huge number. You know, recently in the last few quarters, there's always a big number, but it's usually what, $600,000, $800,000, $1.4 million. That's a doozy of a number. But here's the thing, $1.2 million, approximately $1.2 million of that number.
Speaker 22: were miss shipments of higher margin of blade of materials to overseas customers. Really two shipments in Japan and Italy. Two very big shipments. What happened? Royal materials came in late. See? There you go. International freight. This is a real challenge. Our freight toll refrigerated.
Speaker 23: We can't just put it in any truck so that limits our, you know, freight options considerably. Then we go to international freight, it's even more challenging. And it's difficult for us to flex up our workforce when we're already maxed out. So we get the raw materials and...
Speaker 24: Last couple weeks were scrambling around always. Always adjusting our schedule. Not always, often adjusting our manufacturing schedule because of supply chain issues. But we don't have the ability to just kind of flex up because we're really maxed out in the last couple weeks to get stuff through the manufacturing plant and through testing so we can ship. Factors which affected our margins.
Speaker 25: told by PARC under our business partner agreement with Arian Group for ablative applications. Remember how this works? This is Judge Samarka.
Speaker 26: So for a lot of our big customers they want to stock this material we have this exclusive Arrangement area group in France
Speaker 27: when they're ready for us to produce the material, we'll produce the material with this fabric that they've already bought, that they own. It's a small markup, very small margins, that's the plan. When we have, ultimately, it's a good thing though, when we ultimately, when we actually make the prepreg, the margins are quite good.
Speaker 28: So see what happened here? We lost $1.2 million of this high margin product, and we substituted what $1.2 million a low margin product. That alone, that one factor alone, will fully explain the EBITDA shortfall.
Speaker 29: You know we get us to the low end of the range which is what you would expect since the sales were to lower into the range. Okay, so it's that 1.3 million number. It's just a coincidence that it's exactly the same number, but it's very interesting how those two numbers work together. And like I said, I'll say it again, that's that factor alone.
Speaker 30: That's not the only factor. That factor alone would explain the shortfall in eva-dah. In other words, if that factor was reversed, we wouldn't have had eva-dah shortfall. So let's go on to slide seven because there's more to story, even though that factor alone would explain the eva-dah situation. What else we talk about in terms of what effects are margins? Saving it is hockey.
Speaker 31: our customers and form a selling price increase. There's a couple things here. First of all, some companies are just to us.
Speaker 32: I don't know. I mean doing a scene price increase like doubling your prices and we're just not going to do that We you know we're long-term players. We don't abuse our what we consider to be abuse our customers When a creaking properly indecently so we do raise our prices, but not you know kind of an abusive ways So why is that not why is that not totally covered the cost increases
The lag effect, we talked about this. So when we accept a PO or a redo of PO, we honor that PO. We don't have to wait until the delivery period. We don't say we're raising our prices to our customers. And that's something others are doing. We won't do that. And we have long-term LTA pricing with certain customers.
manufacturing, you know what manufacturing people normally want is good planning, you know, plan out three or four months or five months in terms of what will be run and when. That's how manufacturing is going to be more sufficient. Now, our colon card is not like others. Our colon card is to be responsive, be flexible, have urgency, so we like being able to have any ability to move around.
to adjust for customers. But this kind of stuff is just beyond our experience. We guess the supply chain changes. You know, we have something planned and then the raw material doesn't come in. Something else comes in. We have to make adjustments. Every time we do a change over with these trading operations, there's a lot of downtime, a lot of expense, a lot of extra expense.
It's hard to appreciate unless you've seen the operation, but it's a big deal, a big impact on our margins. Staffing shortage is limitations, so we're paying lots and lots of overtime and other inefficiency relating to our labor, just because our staffing rise, just because it's so tight. And of course, related to the newly commissioned.
plant in Newcompt, Newcompt, and Kansas. So it's a good thing, it's a great thing, but we just started to run it. So obviously, we don't have full utilize yet. So there's at least for a fair time, a negative impact of the course of that new facility, that new facility, which we just started to actually produce product in for us.
What happened to Gross Marges? Well, you know, it's those factors we already discussed. You know, inflation supply chains staffing. And we'll actually talk about that. We get a little bit further into the presentation. It turns it quantifying what we think the impact of that was. We get to slide at 27. It's hopefully a reminder to bring it up again. We get to slide 27. It's further down the presentation. Let's go to slide 10.
and then in Nordea we have the 737,800. That's for the weather, Nester Raidon. Let's go on the slide 11.
My charge, my only comment is you note that 23 is very similar, 22, so it seems like we're kind of settling in to this kind of market segment breakdown. If you look at 21, it was very different, but obviously that was a pandemic here. So let's keep going. Slide 12, Park Loves, niche military aerospace program. This is a slide we do every quarter.
small, but that's niche. Aircraft structure is even for us. It's niche for other people. It might not be niche. To us means more margins, better margins. Let's go to slide 13.
Okay, so we cover this, I guess every quarter for the last few quarters, the trends and considerations in the military markets. We talked about the war at a length and how it's affecting the military budgets and spending. Let's go on to slide 14. Do you have any questions about any of this stuff? At the end, let me know. Let us know, but we're just going to kind of scan through it, basically cover these pilotose reckoning Ivanka now likes her office and our headquarters around the instrument. We talked about kind of two years ago, we looked at defenseory back in downtown. We looked at field privacy and Twitter. We looked at literacy for clean west, a lot of the reason behind it was that they're
We're a sole source in that program for blatant materials. Lots of countries want to path-free a system for obvious reasons. Go on to slide 15. Last, the check item of slide 15.
Our sales of the blade of materials and this C2B fabric were 7.75 million. We're providing that to you before we told you we would, that we told you we'd give you an update at the end of the official year. So you have that. Slide 16, we got some trends and considerations for commercial aerospace and not too much new here.
The commercial aviation industry continues a strong recovery and rebound. Domestic aviation almost back to where it was pre-pandemic. International getting there as well, 75 to 80 percent pre-pandemic. Customer demand seems to be there. But there are some watching question items we should talk about from time to time. Let's go to slide 17. The economy...
So just something to pay attention to. Inflation, so you know if you fly in airlines, that the ticket prices are quite higher, because the airlines have to cover the additional costs for the people and everything else, but especially jet fuel. So is that gonna be okay? Are people gonna continue to pay these prices? I don't know. Then the last check item on slide 17. Yeah, these labor shortages, pilots and mechanics, flight attendants, you know. I'm sorry, you name it.
you got it. So then the other thing that we'll throw in which we haven't mentioned before, what about those ATC delays that were expected near the summer? I mean big ones, big ones. I guess some of the airlines are telling they need to cancel some of their flights because the ATC won't be able to handle it particularly I heard in the Northeast quarter so that could be a factor. The $64,000 question if the commercial aviation industry does falter what are the airlines going to do? How would Boeing respond?
The commercial aircraft industry still deals with its own issues. What are they? Labor, supply chain inflation, you know, kind of a broken record, but these issues are not related to any one segment of the industry. They're not really related to one industry or one geography. They seem to be global issues. The silver lining, we've talked about this before.
Fuel prices get more expensive. Some of the airlines are looking to swap out their, you know, the legacy gas guzzling airplanes for the more modern airplanes that are more fuel efficient. Let's go on to slide 19. You know, we've got to slow up here a little bit. We provide the slide every quarter, but you know, pretty important stuff. GE Aviation jet engine programs.
So firm pricing LTA requirements contract through 2029 with Middle River Aerostructure Systems, we call it MRAS. They're a subsidiary of SD Engineering Aerospace. I got to remind you we do usually that what's going on here, why all these GE Aviation programs? What does SDA Engineering have to do with that? Okay, so I think you know, but I'll just remind you if you forgot that
Middle River used to be a sub for many, many, many years at GE Aviation. And we were put on all these GE Aviation programs when Middle River was a sub, MRES's sub of GE Aviation. It was subsequently sold to the S.T. Engineering Aerospace, a large Singapore-based aerospace company probably four or five years ago. And yet those programs continue before we're quite sure that the S.T. Engineering
the A320neo, you tell me when it's going to end. 1045? I don't know. I mean these programs go for a long long time. That's how life a program works. Undisactory, yep, we finish that. It's in production. Soul source for composite materials for energy cells and thrust aversers for these programs.
The first five, let's call those the A320neo family. They all have the LEAP-1A engines, the 747-8. So that program ended, but there's still spares actually for that program. Love that program. Call back 919, that's the call back to the Chinese company, 919.
I'll cover this a little bit more carefully just in a slide because we don't have any of the discussion in the presentation about these programs. As I said, you can go back to the Q3 presentation or the company presentation which is on our website if you want to get a little more detail on these programs. O-MEC is a Chinese company and the 919 is designed to be the competitor for the A320.
with the PESPOR 20 engines, those are GE engines. And.
That's a business yet, a large business yet. Top right, power composite materials. We're also so source qualified as primary structure component for the FAFSA 420 engines. That's not actually included in the MRAS LTA, but that's actually a GE program. And then the bottom right.
The fan cage containment wrap for the GE9X engine for the 777X, that's produced with Park's AFP materials. It's not included in the Amherst LTA, but the Amherst people told us they want to put it in the LTA. But remember, and this is important, there's a design risk with this program.
The company that produces the fan case is the process of trying. They've done this a few times, so you could be a little skeptical about their ability to succeed. They're trying to redesign the fan case so that the case wrap will not be required. The case wrap is required in order to pass something called FBL Fan Blade-Out, which is an essential test that has to be passed.
So the engine has to demonstrate that if a fan blade separates, it won't be contained. It won't escape the engine.
Because if it does, it's extremely dangerous for the airplane. So that's kind of a non-starter. You can't have that. That's the issue that the FBO test has to be passed. So I just want to mention that it's a program we're really excited about but there is some design risk with that program. Let's go on to slide 20.
Just a brief update on GA Aviation jet engine programs. We're just going to cover the A320neo really.
update you on that. The rest of programs are not going to update you on. X320neo, we already said with the aircraft family, with the CFM leap 1A engines including the 319, 320, 321, 321LR, 321XLR, those variants. So Airbus recently, just I think about a week ago, reaffirmed their plans to achieve.
production rate of and delivery rate of 75 A320neo aircraft family deliveries per month by the end of 2026. I think they said they want to get to 65 by the end of 24 actually.
rate of delivery rate of 75, 8, 3, 20, NEO, aircraft family deliveries per month by the end of 2026. I think they said they want to get the 65 by the end of 24 actually.
So will they get there? It's really hard to say if they'll get there by 26, but I would say very confidently We'll get to 75. Why is that because I got six thousand orders for these airplanes? six thousand orders so
Well, let me skip down and talk about how their delivery history just for perspective and 19 or these are monthly deliveries 47 and 20 36, you know going down there 20 21 40 22 maybe 42 23 through April 37
So they want to get to 75, 65. They also said they wanted to be at 50 by the end of last year. And they were for a couple of months, November and December . But they're slipping back. Now they're at 37 for the first four months of the current calendar year. They have over 6,000 orders. This is a real problem. So they're not going to be able to get to 75 by the end of last year.
You tell me how the supply chain is doing. If they had the ability to wave a magic wand and deliver 75 a month now, they would do it right now. If the market is there, they have 6,000 orders. So you tell me. This is the biggest program in the history of aviation, and they're not able to get to the rates they want to get to. They're really struggling. You tell me how the global supply chain is doing.
they were able to get to 50 a month.
That's 600 a year. That's 10 years. They got 6,000 in their backlog. So in other words, it starts 50 a month.
not 75, not 40, not 37, then they need to give somebody 10 year lead time. You want to order an H320 Neil? Good, 10 years. That's terrible. It's hard to get more business, hard to get more orders. So they're desperate to get the rates up to 75, to 65, 75, and they're struggling.
You know, they're struggling. Do I think they'll get there? Absolutely I think they'll get there. Do we? In 26, I don't know. Maybe 26, maybe 27. I don't know when they'll get there. But my feeling is with lots of confidence they will get there. Why? Because they desperately want to get there. Number one. Number two. The market is there. They have the orders.
The winners are there. So let's keep going. Did I miss anything in this? Oh yeah, so this is important. Let's keep going in this slide because there's a point to this. So the A320 aircraft family offers two approved engines. One is the LEAP-1A engine and the other was a Pratt engine. We supply into the program using the LEAP-1A engine. So important to remember that. Now, what's the market share between the LEAP engine, the CFM engine, the Pratt engine? 60%
so much inertia that the new order backlog already that leads to that 60% market share so assuming your 60% leap market share 75 this is the you know the bottom check item 75 a 320 neo aircraft family delivers per month
Ultimately, if you look at the stuff in blue, the language in blue at the bottom, that would translate to 1,080 LEAP engines per year. Remember that number will get back to you, 1,080 LEAP engines per year. This is just math. They get to 75 and that 60% market share is maintained and it's going to be hard to move that market share very much with that huge backlog, engine backlog.
This is the number. It's 10,000, sorry, 1080, 1080 leap engines per year. That's it. Just pure math. Not my opinion, just pure math. 1080 leap engines per year. Keep that number in your head. So let's go on to slide 21. Goodbye to 747, the great queen of the skies. Goodbye to the great 747 aircraft like none other. I like this photo.
This is a few years ago with an anchorage, you can see here snowing around, but it's kind of so to you a metaphor, maybe I don't, you don't have to explain it to you, your plane is going away, we're behind your plane taking, that's December 7th because the windshield there and it's symbolic that okay is going away. So I think you have to explain something like that, it's probably not worth it. 22, slide 22.
Let's talk about the Q4 revenues with the GA Aviation programs, 4.7 million I think we told you when we did our Q3 and earnings call, about four and a quarter, four and three quarters, so we kind of came in in that range. A total of 22.3 million for 23, it's kind of a strange number.
Look at on the left-hand column. The top 20 was 28.9 million, then 21, 13.2. Obviously, pandemic year, 22, 26.5 million, down to 22.3 million. What's going on here? Are the programs going down? Of course not. Programs are trying to put their programs up anyway. It's all over the place, short term, very erratic. It makes it quite difficult to...
supply into these programs. It's unpredictable. The requirements for us anyway keep changing, going up and down, not very good visibility might be a little bit of an understatement. What are we estimating for GE programs, GE invasion programs for Q1? Six million to 6.5 million. Even there's only about two and a half weeks left.
in our quarter, we're still giving this little footnote that there are risks regarding that forecast for Q1. Why don't we go on to slide 23. Now here's Park's situation, not just GE Aviation.
So we already went through the Q4 number and the total number for fiscal 23, total numbers. And we have a forecast. We're giving you 14 and three quarters to 15 and a quarter million sales for Q1.
and if you want to adjust it EBITDA 3 million to 3.5 million. And again, look at the footnote because we have these risk factors. Another question you might ask is, well, if our sales are going to be let's say around 15 million, wouldn't our EBITDA be expected to be higher? And the answer is, yeah, higher than 3 to 3.5 million. But the margins are under temporary pressure because these things we keep talking about, these things look more predominant.
programs, let's call it a baseline outlook, because of ongoing significant challenges related to serious supply chain disorder. I know it's a broken record, I keep talking about the same things, but these are very kind of powerful things for us. And I think the big concerns and severe staffing shortages would seem to be a global phenomenon.
and the significant uncertainty as to when these challenges will moderate an abate. As a result, providing a year-over-year financial forecast would involve much speculation and therefore would not be helpful or meaningful. Like I was saying regarding the A320 deal, for example. Yeah, I think it'll get to 75 per month. I'm pretty confident about that, but when?
You know, really that's anybody's guess. You know, we can listen to what Airbus is, you know, saying, but that's really a target for them and they've moved that target back because they're struggling with supply chain, already struggling. You're supposed to be at a 50 or not a 50, the 37, I think I said 37 for the first four months of this year. These are real issues. These are not just things people are complaining about.
that the world survives the crisis it is currently, crises it's currently facing. Sorry for the sarcasm there. Talking about nuclear war, things like that. At some point in the not too distant future, as this supply chain will reestablish some degree of order, inflation will moderate, and staffing dynamics will normalize to some degree. As a result, we are providing in the following slides a revenue outlook for our GE Aviation Jet Engine programs.
And letís call it a baseline financial outlook for PARC generally. Letís go on to slide 25. What are the assumptions in doing these things and providing these outlooks? In providing the GE Aviation Programís revenue outlook and the financial outlook for PARC, these are the following assumptions. Thereís not a severe or prolonged economic downturn during the outlook timeframe. That doesnít mean there areóweíre notóif thereís a recession, thereís a loss of
Staffing dynamics return to historically more normal levels. We're assuming at some point the world will get better. Let's go on the slide.
to historically more normal levels. We're assuming at some point the world will get better. Let's go on to slide 26.
All right, this is where it gets interesting. G-aviation, jet engine programs, revenue outlook. We gave you the building blocks for this analysis, I think in the last quarter when we gave you the revenue for engine unit estimates. You look at these numbers. Those numbers come from a Q3 presentation.
And you'd assumptions per year assumptions a footnote number one. Well, we already talked about this A320 Neil aircraft assumption there is that 1080 remember I said keeps in your head that 1080 is based upon information we have from Airbus the rest of the rest of the
the engine unit for your assumptions are things we came up with and will explain, you know, the basis of our assumptions that we came up with. I think they're relatively kind of middle of the road, maybe even conservative. Let's go on a footnote to engine estimates based upon information from the customers. So these numbers, the
engine unit revenue per engine unit I should say numbers are come from our customer that's not something we just came up with on our own let's see footnote 3 we already talked about that and then we're in footnotes 3 I won't go through this free of five
six and seven, there are assumptions in terms of whether film adhesive and Lightening Strike are used on these programs. And the assumptions could be a little conservative, but weíre trying to be conservative. If we say weíre assuming that, letís say, film adhesive is not going to be on this program or Lightening Strike is not going to be on a program, and weíre assuming that weíre assuming that weíre assuming that weíre assuming that
Let's go through the individual programs, Passport 20.
40 airplanes per year or so, two engines per airplane. So I think 90 is a reasonable assumption. C919, 200, that means 100 airplanes. Well, how do we come up with that? Well, Airbus for day 320, remember 919 is a single aisle competitor.
Airbus wants to be at 75 airplanes a month, that's 900. Boeing wants to be at 50 airplanes for a month, that's 600. So, in the 737 Max, Boeing wants to be at 600. Airbus wants to be at 900 for the A320neo. We're assuming 100, 100 airplanes, 200 engines. We think that's actually a relatively conservative assumption.
And it really is probably driven mostly by supply chain because the Chinese control the market and Obviously the Chinese want this aircraft to be a success and they'll control Who buys the airplanes and who doesn't buy the airplanes and inside China especially? ARJ21 That's not too complicated last year There were 26 which Air pains that were delivered to engines per airplane. So you
The engine per year assumptions, we're being pretty conservative here. And remember, there is a design risk. So this whole 6,500,000 number can go away. We had everything up.
And we get to this 50,625,000 number. Just to remind you, I want to remind you, fiscal 23, the number is 22.3 million. So there's a significant amount of incremental growth expected from the GA aviation jet engine programs. Again, we call it an outlook because we can't exactly give you what year it is. It's age for 20, as I said, a lot of confidence.
slide 27. This is where it gets more interesting and we'll have to slow down even more to cover this properly. So, PARC Aerospace Corps Baseline Financial Outlook, this is for the company, it's principally based upon growth estimates of programs in which PARC is sole source qualified. So, we're not talking about new programs we're trying to get on. These programs are already sole source qualified on.
So we're going to have to go through the footnotes. Let's start with the first line, base year, 54.1 million and 11.5 million. Those are just the numbers for fiscal 23, which you already have. Estimated GE program incremental sales. You look at footnote one, 28.3 million. That's just doing the math. Taking that outlook from the prior slide.
and taking the fiscal 23 number and there's the incremental number, $20.3 million. Then the next item, estimated incremental sales for ADL, ADRS program, PAC-free missile system, the Credo, factory, unmanned aircraft, $20 million. So we're not getting your breakdown. That's really just want to protect the confidentiality of these programs. We have
We have the information, but we don't feel comfortable sharing that with you. So I just saw with you at this time making those those assumptions public. But we feel those assumptions, you know, kind of middle road, maybe a little conservative. Non-GE program incremental sales, 8 million. If you read the footnote, what we're basically saying is we're about less...
incremental sales for the non-G-indation business. We think that's a fairly conservative estimate and we get the estimated revenue outlook of $110.4 million, actually approximately $110 million when we get to the outlook here. Now let's talk about EBITDA. We started with $11.5 million.
Estimated EBITDA contribution from incremental revenues. You look at the footnote, we're just saying, okay, we take 110 minus 54, those are the incremental revenues, we multiply that by 37%, which we think is a proper contribution number based upon our historical financial data and performance.
So we think that's a pretty reasonable middle of the road number, $20.8 million. Adjustment to base year EBITDA, you can look at the footnote, but at $2.5 million, I referred to it earlier in the presentation, we're saying that we have about a $2.5 million impact in our current fiscal year, sorry, let's say it's at the 23 fiscal year, from all these things we keep.
So we're making an adjustment because we think our P&L in fiscal 23, the baseline EBITDA of 1.5 million, was burdened by these factors which we think are going to improve significantly. We get to an estimated EBITDA outlook of 34.8 million. So that's just doing the math here. And remember, this is just an outlook. This is not a forecast. We're not taking into account the number of people who have had a COVID-19 vaccine.
any new programs that weíre working on, only things for sole source qualified on already and taking that baseline number of 32 million and increasing it by 25%. So letís go on to slide 28. I donít think we need to go through the individual footnotes because I think we already kind of talked through them. Yes, we did talk through them. If you have any questions about the footnotes on slide 28, let us know. But slide 29, this is an important one. This is footnote 6. The above outlook analysis is not a forecast.
only considers the estimated growth of programs on which Parker's already sole source qualified plus a 25% growth of non-GDA program sales by the outlook year as we discussed. The analysis does not consider any other revenue opportunities including for example, these are just examples, this is not an exhaustive list, these are examples, revenue opportunities related to the AFP manufacturer.
company, a large aerospace program in which the company's composite materials are a finalist, a structure, assemblies, and integrations project, which accompanies in serious discussions with an existing customer, a technology license arrangement under discussion with a large OEM.
several rocket and missile programs with respect to which the company's products are under qualification. These are examples, like I said, non-exhaustive lists, but I just wanted you to understand we're saying it's not a forecast because if we're doing a forecast we would take into account these new opportunities and try to figure out, you know, okay, how many of these we're going to get, how many we're not going to get. That was not the purpose of the exercise. We wanted to give you a baseline outlook.
Let's explain in a little while why we did this because originally we did this related to the dividend decisions that we made a couple months ago. Let's go on to slide 30. We're going to change gears here a little bit. We're going to rush now. We're running up against 45 minutes. So we did a news release on this so you're probably aware of it.
This is when they visited April 5th to review the new plan approval and approval was actually given at the time during the visit. So it was a very happy little visit we had. First production run didn't follow too long after that was April 19th. The expansion cost 20 million bucks, which I think you know about. It has been a long and winding road since we broke ground on a new facility on August 15, 2019. We made a job.
is done well done park people. Of course when we broke ground we didn't know that was the pandemic was around the corner so it made much it made it much more challenging. We never slowed it down from our side but obviously it was much more difficult to get the job done. You know we have a construction crew you remember how it was at the beginning of the pandemic one guy you test test positive the whole crew has to go home for two weeks.
one guy and their crew for COVID of course. Let's go on to slide 31. Another new event, we recently announced our AERODE here, AERODE here, sorry, I gotta pronounce that right, FAE 350-1 Structural Filmmodeaser product. This is a new product offering for PARCC.
So we announced this on May 9th just recently. It's used for use in bonding of aerospace primary and secondary structures. So...
Film adhesive is used in the production of composite structures. The main component is the composite materials, the prepregs that we reproduce, but film adhesive, not the same quite volume but still significant, are used in producing these composite structures. So the key thing is the customers...
Really all of them, I think, that by our composite materials also use film adhesives to build, to produce the composite structures that they produce. So arrowed here, FAE 350-1 is a 350 Turing epoxy based formulation and it's suitable for all these applications. And why don't we go to the last item.
The introduction of our new Aero Adhere product is an important milestone for PARC as it represents a first offering in a planned major new adhesive product line with more in the works than tend to come. So this is a big deal. This is kind of a whole new area for PARC even though it relates to construction and composite structures. We're a company that has been producing pre-picked materials, composite materials or composite structures including lightning strike materials on that as well and now we're into film adhesives.
which is a big leap for PARC and a big top-line opportunity for us as well, I would think. Let's go on to slide 32. Okay, changing back to the, you know, our number kind of stuff, changing gears again. And there's a reason for this. We'll get to that in a minute. Analysis of PARC, cache and cache application. So let's just kind of go through this math here a little bit.
$105.5 million, that was our cash that was just reported as at the end of the fiscal year. The transition tax installment payments remaining $12.5 million. We spoke about this many times. That's payable. I said what those footnotes say through 2025. A dollar per share dividend that we just declared and paid.
20.5 million. So the solution treater project for the ADL project, if we do it, that would be 6 million. The AFP project, if we do it, that's 10 million. We haven't made a final decision on those things, but I'd say it's more likely not. So we add all the things up, $49 million. We subtract 49 million for 105.5 million. We end up with 56.5 million. That's a conceptual computation, but it's basically the same thing.
very pleased about that. Our cash dividend.
So while others cut or canceled their dividends, we maintained our 10 cent per share regular dividend throughout the pandemic. PARC has now paid 38 consecutive years of uninterrupted regular cash dividends without ever skipping a dividend or reducing the dividend amount. On February 9, 2023,
Our board approved 25% increase in the company's regular quarterly cash dividend going from 10 cents per quarter to 12.5 cents per quarter or 40 cents per year to 50 cents per year or total dollars about $8 million to $10 million per year.
Well, why do we do that? So let's go back to slide 27 because that's kind of why we did the analysis for that we did in slide 27 originally, this was done with something reviewed with the board which you know a little bit more detail provided of course and when we saw that our Outlook for either Todd on our forecast
was about $35 million, we felt very comfortable increasing our regular dividends to about $10 million from $8 million to $10 million per year. One could have taken a position or argued that we could have done more, but since Park tends to be a conservative company, we just said, okay, we'll go to that $10 million or $12.5.
basically the kind of analysis that the board used to make the decision. We've had a long run with a regular dividend back to slide 33 that I intend to disrupt that run. In other words, the point is that we feel very comfortable increasing the dividend that we're not going to need to reverse that at some point. Let's go on to slide 34. Again, just continuing with Parks Balance Sheet, et cetera. So on February 9th, same date, Parks Board also declared special dividends of $1 per share.
that we reviewed when we made the decision, the board made the decision to pay the special dividend. We felt that, actually spent a lot of time in this and we had a device from outsiders, investment bankers, did a very careful evaluation. But we felt that this number, this kind of concept number of 56 million, let's say,
is a proper number for PAR. We felt comfortable with the $20.5 million, $1 per share dividend. And that was based on a pretty serious thoughtful analysis I must say. What about M&A? So good question.
We're not giving up on M&A, we're still looking at M&A, but I think we've concluded that M&A is probably a less likely opportunity for the expenditure of our cash than maybe we originally thought. Why is that? Because there's two types of things we're looking at. One is something comes to us, it's usually an auction that's being handled by a investment banker. We've looked at a number of these things and the prices that you're sold for.
are these companies for significantly more than we would be willing to offer a bid. And we don't have any regrets about that. We think the world's insane and we're saying we feel fine. We don't have any regrets fine about the valuations we came up with.
But the outside world has a different opinion and we're not going to chase those kind of values. So that's a little bit of an issue with the companies that are auctioned. Of course, when companies are auctioned, they're not exactly what we want anyway. The company is for sales brought to our attention by an investment banker. The other thing we've been looking at is companies we target.
just looking at another opportunity now in the last couple of weeks that weíre just starting to look at, but I guess a little less optimistic that weíre going to have an outlet for our cash with M&A. If we find something, would we be willing to finance? Sure, weíd be willing to finance if it makes sense for PARC. So the good news, though, and this is I think the main point that we should make, is that thereís really nothing much Honank
Even though we may not be investing in companies via acquisition, maybe we will but may not, there are many opportunities, very attractive opportunities that are coming our way to invest in. Those are listed on footnote 6, the slide regarding our outlook.
those opportunities that we're saying we're not taking into account in the outlook computation and many more. These things are coming our way, actually. And why? Is it just luck? I don't know. Maybe it's because we paid a lot of dues and sacrificed a lot and overcame much so that we're in position now. We've earned that right.
opportunities presented to us. And what I would say is the ROI and these opportunities for, let's go to internal investment on programs or projects, are usually much, much, much more attractive than the potential ROIs on the acquisitions by orders of magnitude sometimes. So that's a good point.
And we think that we'll be able to take advantage of some of these other opportunities. And like I said, if we feel we need to finance an opportunity, we'll be willing to consider that as well. So just continuing back on slide 34, Park has now paid $583 million, over $28 per share.
cash dividends since the beginning of 2005. Our thoughts about cash and capital allocation. No bucks, no Buck Rogers. That's a Tom Wolfe thing from the Right Stuff. Yeah, Right Stuff. So our version of that is no capital, no capital allocation. Somewhere along the way someone has to generate the capital.
or there will be no capital to allocate. So there's a lot of talk about capital allocation and it's all fine, it's good, I'm not criticizing it. But it seems what's missing sometimes is, well, you have to generate the capital, somebody has to do that. And that's not something that's easily done by discussion at a business school. That requires, as far as we're concerned, hard work and sacrifice. Let's go on to slide 35. How about PARC? How about PARC?
done in terms of generating capital. Well, how are we done? The company started by two guys in a garage in Woodside, Queens in 1954, which it's a few bucks they left over from war duty. Basically, they started with no money. But we never gave us anything, nothing I can remember anyway. No, nothing special. But we've paid that $583 million in cash dividends since 2005, so that somebody apart must have figured out how to generate capital over the years.
No capital, no capital allocation. So the fact that we generate a capital makes the discussion about capital allocation meaningful and relevant. If we hadn't generated capital, nothing to talk about.
So let's not forget that part of the equation. It's 536, the Park family, culture eats strategy for breakfast. So Peter Drucker thing.
So at PARC, we have a strategy too, we're not downplaying strategy, but it is our PARC family culture which makes us strong and allows us to endure. How do we generate capital at PARC? How do we generate lasting value at PARC? It's through dedication, through sacrifice, through perseverance. I'm not sure these things are really taught.
in these elite business schools. You know, the capital allocation part of it might be taught, but how do you generate capital? This is how we generate capital anyway. And you have to judge whether we've been successful. I think we have been, but that's my opinion. Because of our ongoing staffing shortages, our film line and tape line people...
I've been working 60 or more hours per week, week in and week out, for over a year now.
That's not only film and tape, but we're focusing on film and tape at this point. This is how we generate capital in the park. Let's go on to slide 37. So why do our people do such things? Why do they want to work 60 plus hours per week, week in and week out? How does that work? Five days, twelve hours.
So there are two shifts, two crews, day and night. So we got pretty much 24-5 coverage on those two machines, critical machines, the hot melt machines, film and tape. So maybe why do people do such things? What because we're nice people or something like that. We say nice things. But more than half that we say we fix.
Maybe it's because actions speak a lot of words. Do you know what came from Abraham Lincoln? I didn't know that, I looked it up and apparently he's the one who first coined that phrase. It's a good one. So when we, just what everybody's laying off their employees at the beginning of the pandemic, remember that? In some cases by the thousands, William Park laid off nobody. We kept all of our precious Park family people even though we were told we were crazy to do so.
but what was going to happen for the future? And a lot of people gave in to fear, and I don't blame them, and they dramatically reduced costs, laid off lots, lots of people. There's this thing, uh...
we go. And remember the vaccine mandates where we were being pressured, pretty heavily pressured, to fire people who dare to define the mandates? What do we tell our people? We said, no we're not going to fire you. It's up to you whether you get vaccinated or not. We didn't tell people that they need to get vaccinated. We didn't tell people not to get vaccinated. We're against vaccines.
But we told people, no, we're not going to do it. As a matter of fact, we said, we're not going to fire you. As a matter of fact, we said, in writing, over our dead body, just to make sure that they understood we're not fooling around. And I meant that. I meant that literally over our dead body. If you want to have a culture which has any real meaning and power, you better be willing to live and die by it. You know, people have cultures, they have nice PowerPoints that some PR firm does to present a culture, but it's meaningless unless you're really willing
We're just finishing up within an hour, slide 38. If you want your people to love your company, you better love them, and it better be true love also, you can't fake love.
Our people are family and we don't turn our backs on family. Peter was right. So here's a picture of our dedicated film line and tape line crews. These are wonderful, wonderful people. I really was very pleased when I asked Corey to take a picture of these guys, these guys and cals during shift change. That's the only time we can get most of them in one photo.
It's really an honor for me to be able to work with these people. And actually, I was a little emotional. I got a little emotional when I saw this picture because they look so happy, you know, and they're working so hard and there's so many nice smiles on their faces. So that meant a lot to me. I don't know if it means anything to anybody else, but I just want you to know it meant a lot to me. So, okay, thank you very much. We got one hour and one minute. We're done with our presentation. So, operator, if there are any questions at this point, we'd be happy to take them. Thank you, sir. We will now be...
The first question comes from the line of Nick Riposkella with NR Management. Please proceed with your question. Good morning, Ryan and the team. Can you hear me okay? Yeah, I hear you fine, Nick. Thank you. Great, great, great.
Just a couple of questions. If you could just give a little update in your thoughts on what's going on with China and the COMAC program. Just really haven't heard much about in the press about that lately. Secondly... wtol Dry Track
you know, you've again laid out.
Park is really a US based growth manufacturing concern. That's the way I look at it. I look at you as a growth stock based on the outlook.
And so if we were to have some stutter steps here, would you still have an appetite for share repurchase if Mr. Market became silly at some point and the equity were to become depressed? And then finally, and this may be a stupid question if there is.
Do you have any thoughts on the removal from the S&P index? I know that's out of your eye.
You know you can control you have any family thoughts on that be appreciated. Thank you so much Okay, thanks, Nick Comac yeah, you know it's funny the Chinese are not as transparent a little opaque And we follow news for you probably see the same things we see and we haven't seen much
in terms of what dates to the programs. The programs are progressing though from our perspective in terms of material requirements. The Air Trade 21, that's at this point really an aircraft that's in full production. I don't know if it will ramp up the higher rates. As I said last year, I think they did 26 airplanes. So it's a small program, but it's a meaningful program.
20 as you know. We'll have to see what happens. I haven't heard any recent news though Nick, although I would just go back to what I've said numerous times, which is that this is a big, big, big prestige program for the Chinese. And my bet is that they're going to do everything they can to make it successful. Let's see, you had a comment about our being a growth stock and
to buybacks, maybe that was the question. Yeah, so actually something that we are thinking about, something on our radar screen, considering especially like I think we were suggesting the outlook, is our company valued properly? Probably not. And that actually ties into the movement from the S&P, the small cap index.
We were given no notice about it. You know, you read about it probably the same time we read about it. It was very disappointing. Somebody made a comment, which I didn't really appreciate too much, that, well, we were deleted from the S&P index, the slow cap index, because her market cap hadn't...
increased as much as it needed to or had increased very much or something to that effect. And I thought it was, well, okay.
Of the companies in the S&P small cap index, how many pay cash dividends? Okay, second question. My guess is not too many because smaller companies generally don't pay cash dividends. Second question. Other companies in the S&P small cap index, how many pay cash dividends?
which you pay cash dividends, how many of you pay $28 of cash dividends per share since 2005? It's obviously that has a big impact upon the value of the company. So we're very disappointed. We had increased our dividend, our regular dividend, and that seemed to drive the stock price up quite a bit.
it just disappointing to us. What we're going to say it's not fair, of course not. We've been in touch with S&P. They've been very polite and very nice and you know they're not very transparent about how they go through these decisions but obviously wasn't what we wanted but we just have to keep going and
We'll see what happens. I don't know if we have a chance to get back in the index, but that's not really our main objective. Our main objective is to realize the goals for PARC. Nick, did I miss anything? Did I cover all those questions? Yeah, no, that's pretty good. Thank you so much. I appreciate it.
Thank you good. Thank you very much, and the next question comes in the line of Matt speiegel with gwk investments. Please proceed with your question. Excuse me, the next question comes in the line of Brian Glenn with olcot square investment partners. Please proceed with your question.
Hey Brian , thanks for the always very thorough walkthrough. How you doing Brian ? Good. Good. I have a couple questions. So the first is on the MRAS, which I know was three, five, and five years.
Are you able to discuss, and you probably can't go into detail, but to discuss the mechanisms for the reprice, which I think, correct me if I'm wrong, would be 2025? That's the cast and concrete. We have a price increase. Overpricing goes up.
in the raw materials except for one where there's a kind of a risk sharing arrangement for one of the raw material components but it's really a non-raw material area of our cost that you know we are at risk for. We assumed about 3% inflation year over year and obviously that has not been the case in the last like 12 months or so so that's where we have the risk and the price increase that goes into effect January of 2025.
use that 3% assumption. I just want to be clear, it's not an index. In other words, it doesn't change based upon what happens with inflation. I'm just saying when Amherst and Park negotiated the agreement, we agreed that we would assume a 3% inflation year over year in order to come up with a pricing.
Okay, yeah, thanks for that. I appreciate it and understood. And then my second question, it's twofold, I guess. There's a lot of talk on the impressive dividend record and it certainly is impressive and large and respectable and appreciated. Does the board, to the extent you can share, does the board...
have discussions around total shareholder return at all? Or is it mainly just around dividends? And then related to that, is there anything, I know a lot of people have asked over the last few quarters and years about dividends versus buybacks, is there any other factors that would influence that decision related to you or the board's preference or is there anything else you'd like to add?
for amount of shares outstanding, trading liquidity, or anything like that, or ownership interest that may bias you guys one way or the other or is that just not a factor.
So Brian , it's all a factor, you know, and maybe I didn't explain it that well, but when we went through the analysis to where we decided to do the $1 dividend and also the increase in our dividend, we had discussions about all those things, total show, return, buybacks, you know, M&A, investment about using our cash for internal investment.
presentation is because we have the recent increase in the regular dividend and also the special dividend.
I think the board is pretty sophisticated about this stuff and if there's some belief that's not, I think that's not correct at all. But in addition to that, we do get regular advice from outside experts, investment banking people that are...
the tops of the firms like CEO levels, present levels at their firms. So I think we're well advised and I think we're well aware of all the different factors that you mentioned in terms of the total shareholder return.
Yes, yes, understood. I mean, I think if, and this is just me, but if you look at your outlook and maybe that's hit one day, maybe it's not. I understand it's not a forecast and there's a lot of levers there. It seems to me that there's substantial return that could be realized over time.
by retiring a share and possibly higher than the return on assets or return on invested capital rate of the firm historically and I know that's changing with the footprint and the new plant coming online and some of the internal projects but that that's just my own observation and you know just just something that that
that I believe to be true. But I do appreciate you doing this walkthrough. It's always appreciated and I find the level of detail you guys put into this presentation extremely helpful and appreciated. Thank you very much for your input, Brian .
But I do appreciate you doing this walkthrough. It's always appreciated and I find the level of detail you guys put into this presentation extremely helpful and appreciated. Okay, well thank you very much for your input, Brian . Thanks again.
Thank you. At this time there are no further questions and I would like to turn the floor back over to Brian Short for any closing comments. Okay, this is Brian again. Thank you very much for everybody, very much for listening in. These calls are, I try to make them quick and I try to rush through these things a little bit but I end up going for an hour so I appreciate you hanging in there. And feel free to, if you have any follow up questions, feel free to give us a call and feel free to give Matt or me a call.