Q1 2024 Park Aerospace Corp Earnings Call
Good morning, My name is Sherry and I will be your conference operator today at this time I would like to welcome everybody to the Park Aerospace Corp, first quarter fiscal year 'twenty 'twenty four earnings release conference call and Investor presentation.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
To ask a question during this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star two.
At this time I will turn the call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shaw You May begin your conference.
Thank you operator this is Bryan good morning, everybody and welcome to parks fiscal 'twenty for Q1 Investor Conference call with me as usual, Matt Farabaugh our CFO .
Good morning, we announced our earnings and in the earnings release or our instructions as to how you can access it should access the presentation that we're about to go through she probably one or two that you haven't done it. So far it's also on our website.
Just a comment about presentation is generally a we put a lot of time and effort into these presentations when he takes them quite seriously look at them as an opportunity to provide you with information that we think will be useful and helpful to you in better understanding park better understanding our company.
That includes challenges that concludes things, where we could come up short.
Keeps things, where we've done fine.
Just trying to help you understand our company better we don't look at this are these calls or these presentations as an opportunity to heights a company to promote it we're not trying to hustle.
Not worry or four that's kind of insulting.
I wanted to tell you what a great job we're doing that's not the objective of these these calls and presentations I think you know these things because we mentioned them before in the past, but I suppose it would be useful just to remind you a little bit about these things.
The presentation, probably will take about an hour to go through these tend to be long. One reason is that every quarter or is there a new people dial in so we want the presentation to stand on its own to some extent, we don't want a new person you have to go back and someone new to park to look at the last five presentations to figure out what the heck we're talking.
Bob we subtract all of it has to be too much.
So.
A couple of comments most comments are quite positive.
Ah butter presentations.
For a very good shareholder tell me they really appreciate the information that we provide to them has had a couple of comments that it goes on too long and I understand that you know we're all busy I guess my suggestion to you if you're in that camp is maybe want to listen to the replay and then you could fast forward through the year, it's parts of the presentation that or less of less interest to you.
Obviously, you'll be July take questions at the end of the presentation. We always liked the questions actually because it kind of brings out without maybe other people thinking you know one person to ask a question you can probably kind of others are thinking that's exactly what I was thinking too.
The bottom of the first page of the the cover page I guess or the presentation.
As its our parks 70, yes, you're in business I, just thought you might be interested in that if anybody has a question about the secret to longevity for.
For park.
It's probably not a lot of brilliant stuff, maybe not even imagine at this stuff.
We don't take shortcuts, we will cut corners, and you may not like cure news, but we do most things the hard way.
So okay, having said that one of we proceed let's go on to slide two which is our forward looking disclaimer language and if you have any questions about a flight to please let us know slide three is a table of contents and the photo here. It was taken out of the Triple trial. The next was taken by Donna.
At the Paris Air show, let's see let's go on to slide four slide four quarterly results. So if you look to the right.
And sorry to the right hand column Q1, you can see the numbers there I guess I won't go through each one, but let's kind of rethought. The are the Q1 numbers in conjunction with the language at the bottom of it.
Slide you know why do we say about Q1 during our Q4 investor call. The sales estimate was 14 and three quarters to 15, a quarter million Ah shall we came and it looks like a little bit above that range, but EBITDA estimate was 3 million three 5 million. We came in kind of in the middle of that range also.
No.
The numbers are right hand column, our gross margin 31, 1% I think you know by now we don't know pretty upset with them when their gross margins under three but we're still feeling that the margin is lower than it should be and we feel our margins are somewhat under pressure and you could see you could say that just to look at the numbers because you say well we exceeded the top.
Offline a little bit why don't we use it. So you do you know the bottom line, but a little bit of kind of what would fit. So we'll talk about that next few slides.
I think that covers it more or less for slide four let's go on to slide five a little discussion about the quarterly results next year.
Our slides right first of all I have to tell you have to say outstanding job on parks people to exceed at least by little our Q1 sales estimate and to make our Q4.
EBITDAR estimate under difficult circumstances, especially considering so different challenges and I'll stop here somebody said well you know you go into the same stuff every quarter. Yeah. We go over the same stopped for 10 minutes every quarter, we live with a 24 seven every quarter. It seriously. We think you should know these things even if they haven't changed that much. We think you should know.
What's going on in park, and what we're kind of living with so yeah. It is it is somewhat repetitive but was soon as these things start being an issue for us will stop telling you about them.
Fly change disruptions and ironic unreliability boy, that's not the first time, we talked about that situation seems to be beginning to improve but we still have our surprises and we just got a big one a couple of weeks ago with suppliers I just want to stop here and explain we were talking about parks supply chain very important will get into this later in the presentation.
We're not talking about the supply chain generally.
Related to the whole aerospace industry, that's a different story in a very different story, we're just talking about our supply chain on a slide five here, we are managing them.
I wanted to say I believe we have excellent relationships with our suppliers that's been to our benefit.
No tables always true change churn would it be called at some point, if oh things are going your way or is the dynamics of your favor industry people not so nicely when those dynamics reverse watch out will happen well, we always try to treat people with our people, including our suppliers are with dignity and respect and I think that helps us win.
Things are challenging and difficult as they are now we are managing the challenges by building inventory, where possible and appropriate providing suppliers with longer lead times, where appropriate but supply chain disruptions to continue to be challenging or difficult now there was a comment that maybe we're kind of late to.
Dealing with the supply chain issues or remediation.
Actions have been weak or is it something like that and I just wanted to say I've been doing this a long long long time, a long time and I think our people doing outstanding job in managing the supply chain challenges and outstanding job between our Mark in Korean Chris and then also we've got all of our production planning that feeds into it as well.
That's something no one raw material component doesn't arrive on time, we gotta go some people got them or change your production schedule around a lot of juggling them I think an outstanding job our people outstanding our freight, particularly international trade disruptions and unreliability, that's still a challenge and you know last quarter Q4, remember we told you we missed.
$1.2 million of international shipments to Oh, what was it to Japan, Italy, Japan, and Italy, Yeah blame shipments.
Because of the international freight Forwarders. This is a big Big challenge, but again I would tell you our people doing an outstanding job in my opinion, Corey John and others. The team a steady job under very difficult circumstances.
There was some comment that maybe our people weren't doing a great job I totally disagree with that I totally disagree with it in terms of the international freight forwarders.
And.
They just want to make that point, because I disagree with the comment that maybe weren't on top of our game I think we're really doing a great job in a very.
Difficult environment with international freight forwarding, especially international staffing shortages.
Yeah, there are ongoing and they continue to be challenging for us doing more with less that's kind of what we do at park, that's not new we've always done more with less at park even when.
Things are better we do more with less so let's go into more of a miss in the shipments of about $400000 in Q1 and guess what most of that was guess what international freight forwarding. So that challenge has not gone away. It let's go on to slide six.
Continuing to hear real factors, which affected our margins in Q1.
I won't read off all the different items.
That of inflation inflation has affected but is still a factor for us it's leveled off to some extent, but we're still dealing with leveling off at that higher level and sometimes people.
Missed that 0.0 inflation's only up you know X amount this quarter, yeah, but it's up off a higher base that hasn't gone away and we have deflation and price started cleaned out maybe we get back to where it started from all that it's not something that most economists would wish for as deflation, let's go on to slide seven.
Some of the increased costs were passed on.
To our customers in Q1 in the form of selling price increases. This is something we've discussed the last few quarters. It hasn't changed we're still discussing it why.
Why not all the lag effect I mean, we've discussed many times its still something we live with an LTA pricing. This is a big deal LTA pricing because that doesn't change and that's the point about inflation may not be up so much this quarter, but it's up off an elevated level and arc LTA pricing hasnt changed with the I think you know this but rest for instance, with.
One of our big LTE as of course, we have fixed price increase in 2025, but we're sitting here with the current prices until 2025.
So let's go on the supply chain disruptions, causing inefficiencies in our manufacturing operations absolutely well.
<unk> talked about that prior slide were those changes those challenges with supply chain not only caused us to have to deal with supply chain issues. It's also it also causes after it has to do with a production issue some production planning and management of staffing shortages. So yeah, it's an efficient deployment of our workforce increased expenses.
As costs related to commission, a new plant. So we have the new plant, we're very delighted about that it's one of the new plant, but obviously the day we commission it.
It absorbed and of course, the plant will be fully utilized that's that's not surprised I was you know part of the planning, but it's still a factor which impacts our P&L. Let's go on to slide eight we don't really have to talk much about slight eight Oh. This is the historical annual data that we share with you pretty much every quarter just for perspective, let's go on slide nine.
Top five customers. This is something we do every quarter.
So do we have Abbvie O F D. A R that relates to viggo lunch or a blade materials cradles that actually dianetics. The X 61, a gremlin, that's an aircraft at and unmanned aircraft at Craiglist producers under contract.
So next one is middle wherever you know what they are I think that's the Airbus XLR. That's also with a photo that was taken by Donna.
The Paris Air show.
Meg at P. L C Ah that ties to the Growler, that's a course for right homes and in order to improve for choosing this feature of this time with a new order in group one of our real good customers.
The Bombardier Global 8000. This is the we talk about later are the passport 20 engine component that we that we work with already a month.
So in the past for 20 years the engine on the Bombardier Global It doesn't I guess I should explain it let's go on to slide 10.
So we have a pie chart here.
I guess the interesting thing to me is that just look at this you don't look at age number look at the just the you know the graphical depictions that fiscal 'twenty. One that was the big pandemic year, where commercial are way down military kind of held its own but if you look at 'twenty two 'twenty three in Q1 of 24, the pie charts look pretty similar in terms of.
Actual military and our.
Business aircraft.
Let's go on to Slide 11. This is was an interesting slide. This is actually something later does worse every quarter. ALLETE is ahead of our customer service parks loves niche military aerospace programs. These aren't necessarily the biggest ones. These are ones that we think are interesting and might be you know kind of nice to share.
Oh, the predator, you've probably heard about the predator, we do materials restructures and the creditor I'm going to the right side of the page the Lockheed Martin long range anti ship missiles radome materials for that program bottom left Israeli Aero screen missile defense system Ablate. It this is a really.
Big opportunity for park, very big Opportune, just starting on it.
But if you read about theirs.
A lot of talk about this a missile defense system not just for Israel, but also for Europe as well. The J stars. So are the right home, which girls with J stars and are they top center M. K 21 a.
That's a future I B I C. P M technology being tested I think by the Air Force. It carries the W. 87 dish one reentry warhead.
So I'm not going to say, what that's for but I'm sure you know what it's for and we supply into that program.
Our ablate us so lets go on to slide 12.
Can we go to updates for the price of one so all we're doing is combining the update about the plant expansion and the new film visa product that we recently introduced and what we're doing here. It was running in the new film visa product honor a new film line in a new plant. So theres your two updates for the price of one.
Go on to slide 13.
So, let's talk a little bit about the trends and considerations for aerospace the aerospace industry, starting with the military markets.
Military markets continue to be a very strong fueled by the ongoing war in Europe and major global tensions there's talk about winning the war.
And I'm I'm not sure what that even means but there was talk about it is certainly a lot of people and the government are very gung Ho for military right now optimism of bounds not foreign military sale. That's a big deal you know we think in terms of our our U S defense budget, but that's kind of only part of the picture so much demand performed.
Literary sales data has a big impact on especially U S military.
The contractors.
So what will happen when the war in so that's an interesting question and see I told you is sometimes when you just want to share with you some things to think about.
All wars and at some 0.1 way or another it's not something that seems to be discussed very much especially in terms of the defense industry and you know what at what kind of impact it will have on the defense industry.
All of the countries in Western Europe returned to spending a focused the domestic welfare programs, what about eastern Europe , what about the U S. Maybe it depends on who's running the place what about defense, depending in Asia, that's kind of a different dynamic there I don't have an answer I'm, just saying, it's something to think about that could be important or it could be an important factor, let's go on to slide four.
14, a commercial talking about commercial aerospace markets optimism abounds to Paris Air show. We just showed you a couple of photos from the Paris Air show Visor were borderline euphoric almost getting maybe almost giddy claims from the show about the commercial aircraft industry being back and with quotes I just put my fingers up you couldn't.
See that didn't put approach and putting your hard with the pandemic in the rear view mirror.
Indigo Airlines, India's leading domestic carrier kicked off the show kind of took the oxygen out of the show and away with the announcement of our record breaking 580 <unk> through 'twenty.
Family aircraft door, and that's not just a record breaking for the neo that's a record breaker for any water I understand anyway. It was a big big Big deal 500 airplanes, a lot of airplanes now whats interesting here about it has to be delivered between 2030 and 35, but that's a long time would you want or something when you talk about what our car when you're not going to get it for what eight.
Yours, probably not you know so what's going on here is this the start of market capitulation to maybe I think the you know the the backlog for <unk> through 'twenty, New in particular is very very huge but had been kind of stalled out it wasn't really growing and the reason was the backlog was so my opinion. So Lars the lead times are so large.
But the airlines are reluctant to order more but I think what's happened here in my opinion again as airlines.
Realize that it's not going to get better and they better get the orders and now after 2030 or they're going to miss out even on those orders. So it seems like maybe that's there might be a little bit of a conventional market capitulation that you realize you're realizing we better go into water airplanes. This pipe room about getting an airplane delivered in three years.
I agree and that's not going to happen well.
Well its single aisle orders, which have been somewhat stalled out do the huge backlogs are extremely long lead times now accelerate we'll have to watch for that but it is possible that this there's this big 500 aircraft order, which deliver it not until the third Tucson thirties, maybe a sign of things to come let's watch for that.
Optimism in borderline euphoria are good thing for the industry.
Right and question marks well I'll, just think about that I don't know doing something to think about it I'm not saying you'll have to answer what you know think about times in any industry, where there was kind of.
Very.
Comprehensive euphoria.
And what that led to in any industry.
Just think about a little bit it's just something to think about in terms of where we are in aerospace I don't know what it means I'm, just saying, it's something to think about.
Yeah, we have somebody down the bottom of the page you're very very little tight, but there may be one little issue minor detail to be concerned about let's go on to slide 15, well supply chain. So this is what I was talking about before and we talked about supply chain is getting better for parks supply chain, we're not talking at all about the industry supply chain, that's a totally different.
Story, and that's a huge huge huge story as far as I'm concerned megan's pediment to recovery ramp backup for both military and commercial aerospace industries demand is certainly there is no question both on the military side and the commercial side, but when will the industry be able to produce the commercial aircrafts and military hardware needed to meet the demand.
To me that's like the 64000 dollar question Vulgate Airbus you seem to be saying.
Supply chain issues, well again, there is that quotes normalize whatever that means towards the end of 2024.
Is that realistic or is it in part wishful thinking I know the answer that question just asking a question much Justin to answer, but I will remind you that Gordon disarm their supply chain crisis was supposed to have been resolved by the end of last year and he has a track record in predicting the end of supply chain crisis isn't perfect.
Perfect, Let's go on to slide 16.
According to Airbus to three key supply chain issues are electronic components.
Semiconductor chips engines, and raw materials I'm not sure what raw materials means I'm just quoting from what you know and Airbus Representative said, what like one thing I can tell you is there's no issues of Airbus with raw materials from park.
Well, here's the kind of key thing here for me. The key question what is the supply chain crisis really about anyway. When we talk about supply chain supply chain supply chain wasn't really talking about is it really just a systemic workforce shortages in staffing issues I think it might be because so many people have left the workforce. We now have what is called.
Full flow in this country.
So much money being pumped in the system. Some of these people are encouraged to leave the work force maybe prudently let's go on to slide 17. According to Airbus. The this is really a big thing as far as I'm concerned the ore, but the aerospace industry used to be a little higher it back eight out of 10 employees, which is like Oh, you know aerospace very cyclical up and down up and.
Down the pattern letting people go hiring them back I didn't Golar got you know, we don't do that but that's the pattern in the aerospace industry, we don't like it very much but that's how it's done but now the industry has only been able to hire back listen as two out of 10 employees. Let go during the pandemic while of course as you know park led none of our people go into.
During the pandemic so no issue for park about calling about people, but this is not about part this is about the industry a real human tragedy and in our opinion, what do you mean, but what do you mean by that is broken people people left the work force and don't have to be able to come back to work.
They've been they've lost their edge tape not work for so long.
The lives of really maybe been destroyed because they're really sad thing and we see these people I'm not speaking theoretically I'm not watching you know financial news and telling you. This is these are people we see they try to come back to work I just don't have the ability to do it and they've lost their edge its a real sad thing.
To me it is anyway, it's a tragedy how does this then.
How does this get resolved.
Any ideas.
I mean, that's that's a real question I don't really understand how it gets resolved you.
If the supply chain issue really is a work force issue and Where's the workforce going to come from if we had this full employment you have so many people have left the workforce.
I'm, just saying that there's a real question Mark in our months I just wanted to mention one thing one anecdote here.
So our supply chain.
We have a customer that supplies into a very important military program, which is real hot I mean, everybody wants this hard where everybody wants his equipment every once a system you know.
In the news all the time, they call us and say Oh, well the orders that they place for our Q2, meaning through the end of August when the push out to Q3, well see what what do you mean why would you want to do that and have programs. So hot. These are good people. They don't play games with us He's a really good people when they say to us.
I believe they said, yeah, but we can't hire the people to make the components.
We can't hire the people who make the components.
So as far as their customers are concerned or they say, it's a supply chain issue, but what's the real issue really shoes, they can't hire the people to make the components.
Yes.
It's a mess if you ask me.
Let's go on to slide 18.
Changing gears, a totally GE aviation jet engine programs. So this is a slide that we use that we include in every presentation, although we expand it a little bit. So we went onto two pages sorry about that.
We had that firm pricing L. T. A requirement contract through 29 with the Mras Middle River, which is just top of FC Engineering Aerospace that Singaporean company rebuilt that we've done in factory that was far of our understanding the factories completed and production. So what we basically told them.
Middle River. It was once we signed that LTA for 2029, we will build that factory for you will build ever done the factory for you. So we saw it we measure it in T. L. D. A we bought the factory we do what we say we're going to do we're sole sourced for composite materials for engineered cells and T. Our thrust reversers T ours for multiple programs I won't go through.
All in the first five or electrical to acre 20, Neo family with those leap engines and there's some 47 are the progress been cancelled steelmaking, some spares, though not too many but some are and then we got the two Chinese aircraft to 919 are June 'twenty, one and then the Bombardier Global seven 508000.
<unk> got a nice picture here, we kept a picture of the <unk> 47 to eight engine yourselves you know the programs.
Canceled let's go on to slide 19.
So are we just skipped over the first one we cover that every every quarter.
And the second item on on Slide 19, Theres, a little bit of an update your fan case containment wrap for the G. Nine X engines for a triple seven X aircraft, that's produced with our AFP composite materials. It's not included in the M. A S. L T not now, but we believe the way we've been told that.
Ameristic wont include the new LTA were kind of waiting to see what happens with the program remember we talk every time, we discussed every time, we missed this program the redesign risk.
The issue here is that the fan case, what's not able to pass what's called the F. B O test, which is a critical test. It's a you know it's a.
Non negotiable test and the only thing that's been certified so far it's been a fan case with the case wrap with our materials, which has passed the F. P. O tests. So the suppliers of fan cases trying to redesign the fan case to pass the test without a U K trap so far.
That has not succeeded and if it doesn't succeed then the fan case wrapped up Brian will continue throughout the program I suspect.
Next item. These are two new items at the bottom of the page.
Mras is qualifying to park proprietary film adhesive formulations, one of which is the arrowed here that we announced recently, but theres. Another formulation that we developed that mras is just taking off the qualification of as well Here's a big one life of program agreement are requested by M. S. N S T E.
By us requested by executives in Bras N S C.
I'm, just saying yeah. We after 2029, that's not good enough we want to change it into a life of program agreement life of program means until the program ends you tell me one of these programs going in 2045 2015, and these programs are all different.
But it's a long long long time in the future. So how much it's worth to park I dunno you'd look at the outlook later on the presentation. It says once these programs ramp up 50.
$50 million, but that's in the 2025 to 2029th period after that the numbers will be higher. So you do the math to figure out how much of this is worth the park that we what we've done and they've asked us to do this we provided them with a draft of the life of program Mou and we're gonna start to negotiate I guess her work on the details.
And next couple of weeks, so I'm I think it's a it's a win win it's good for park, but it's also good for the customer let's go on to slide 20.
I'll finish aviation jet engine programs. So let's talk about some of the programs agent for Aneel, we always start with that program because it was the big the big dog.
And and.
And then GE aviation.
The program portfolio.
We were talking to them about this India's indeed, indigo, where we've placed a record 580 320 Neo family aircraft orders Paris Air show now, assuming a 60% leap our market share will discuss a little bit further down in the presentation. That's worth over $20 million revenue Park Airbus you already had.
Huge over 6820 Neo aircraft family backlog at the end of 2023, and then we had this 500 aircraft order at the Paris, two Paris Air show Airbus reaffirmed their plan to achieve that remember that 75 rate 75 acres 20, Neo aircraft family deliveries per month.
You're saying now by the end of 2026, well Airbus retrieved achieved the rate by the end of 2026 hard to say, but based upon your backlog, which is so huge there's a high degree of confidence they'll get there at some point maybe not I mean, it's just my opinion you know the Airbus C E O such as can be done in 2026, if its not my guess is it won't be too.
How long are after because there's you know so much.
Oh Gee, you're behind on part of Airbus up to.
Do you get there how are they doing so far with the planned ramp up and then this is where it gets a little complicated let's go on to slide 21 challenging road for them. So far according to reports and.
2023 year to date through May Airbus delivered an average of about 40 40 acre 20 family aircraft per month, that's not what they want.
We want with a you know.
That kind of backlog, that's not what they want remember middle last year I think they.
They expressed stay theres target or objected to get over 50 deliveries per month by the end of last year and they did I think in November December they exceeded 50, but here. We are who are the first five months of this year back to 40, so really struggling now in May I think they they've got back over 50.
So that's a trend or that was just the month of May really struggling I mean, you think could be 75 to be at 75 right now so theres one there's a supply chain issue and it's very significant holding back their ability to ramp up as quickly as they want to take your 20 Neo aircraft family offers to proved engines you know this leap.
The engine, which is the one we're on and then Pratt 1100 G engine as well as at the end of April 2023, CFM leap out of 60 points zero, that's a precise number by the way market share a firm engine orders for the Asia 20 Neo family of aircraft.
Now recently why this is kind of a maybe its important recently recently widely reported serious durability issue with the Pratt 1100 G engine, all new entrants have growing pains, no doubt about it, especially with new technology, but the reported Pratt engine durability issues seem to be far worse than durable durability issue.
As reported on the leap engine option for <unk> through 'twenty.
Eric a neo aircraft family. So let's go on to slide 22, According to GE aviation they've already made improvements to the leap engine regarding durability.
The test results of yielded very good results, let's what's Oh, sorry next item now here's an important question will the part I love under G. Durability issues lead to an increase in C. F. N <unk> hundred 20, Neo family aircraft program market share to even greater than 60%.
It's something interesting to think about.
You know, but these are serious issues you're widely reported so.
Let me just ask the question, let's say and you're a big airline and you're ordering <unk> hundred 20 Neo aircraft. There you need to select an engine pretty soon what did you need to select.
Maybe even like Pratt.
But are you going to take a chance that by the time. Your aircraft has delivered these durability issues will be resolved I mean, you're not gonna be emotional I think you're running an airline you want to make you know make the best decision.
So it's a question as to whether these durability issues, which again are widely reported will move the market share more than.
CFM.
Leap engines favor.
These are like I said serious issues. There is a I think one airline that here's the thing that airlines that will make that much money. There margins are thin. So it's really a problem when the airplanes on the ground are not flying this that's what happens with durability issues Europeans running around a lot more there's one airline who claims that declared bankruptcy.
Because there's so many there are planes around it it's not a minor issue. So we'll see what happens, but I just think it's something you might want to be aware of it go into next item, assuming that 60% market share and assuming 75 aircraft deliveries per month.
That basically translates to that number 1080 leap one eight engines per year next item.
Interesting remember, we talked about the 821 X L. R. In prior presentations. So that's a pretty exciting airplane that Airbus is working on and.
They are so that okay. So what happened is that the the aircraft made its debut at the Paris Air show, but with a leap engine and Airbus plans to achieve certification of the aircraft with a leap engine and so they're going to for sure five aircraft with the leap engine and as you know Boeing doesn't have a response for that aircraft slide 23.
So just a couple of the programs will touch on a 91 nine.
[noise] CFM leap once he engine.
Commack plans to achieve reduction rate of 150 150 C. Nine when an aircraft a year within five years, that's what Comex says Okay. Commack currently has over 1200 orders China Eastern Airlines just conducted a recently conducted its first passenger flight with a 91 nine.
Here's the issue or is the dynamic basically commack will be able to sell all their believes they can produce these they control a piece that they control the market in China.
They can produce it those airplanes will be sold into the Chinese market, whether there'll be sold outside of China Smart because that's another question I'm not even sure that's the objective of our.
Commack in the Chinese government's response at this time, the global 8000 variant.
Let's see prototype first flew in May of 'twenty, three and expect to enter service in 25 lets go into 'twenty for so just a little bit of the soldier to hear well not only in the stores you've got the old and the new we got to the Boeing 747 going bye bye bye, but the new airplane is triple seven X.
That's felt to enter service in 2025, we talked about the cash wrap we've talked about the the reef potential redesign.
But it's still a program that we feel really excited and happy to be on and hopefully it'll work out our way I think it will my opinion I could be wrong, but we'll see what happens I think we'll know where the next year. How this is going to break or maybe even sooner than that.
Going to slide 25.
[noise] GE aviation jet engine programs sales history. So Q1, we had $6 2 million, which is kind of in the range of more or less of the last couple of years, some ups and downs not the a 21 year that was the the.
Pandemic here.
But would you probably know there's just we're not providing a forecast for Q2 for.
For either GE aviation programs or for park. So why are we not doing that so just a little bit of background here Airbus has been a pretty aggressive company.
Yes.
345 years during a pandemic Airbus was known to be pretty aggressive with our customers.
Who wanted to push out or cancel orders Airbus wasn't not allowing them to do that.
Airbus also always been quite publicly aggressive with the supply chain for you know a couple of years now almost uncomfortable with these kind of public battles in the supply chain, where Airbus has been very aggressive very vocal about pushing the supply chain pushes fly chi pushing the supply chain of ramp up ramp up ramp up so that they can.
Get to the rates that Airbus can get to the rates they want.
And it's been interesting battle now some companies have done pretty good job with meeting or buses expectations. Some companies that supply chain, maybe companies like safran maybe companies like Airbus.
Alright companies like Mras.
Our friend.
But I.
I mean, how many components does it take to make a neutral 20 deal I don't know the answer to that question, but you know it's a lot lot lot only supplier supply to their program I don't know the answer but it's a lot lot lot.
And.
A lot of the key suppliers can be meeting Airbus as expectations.
But it was even a few and there's a lot more in a few of them, they're not what happens Airbus not able to produce the aircraft.
So what I'm gonna do.
They're going to say well, we have to slow down our rates. So the suppliers are good suppliers. It really try to keep up with your expectations, what do they call it with.
They're called with a lot of inventory.
And that's what's happened here.
We don't know the details yet we're gonna be meeting with them rather than next couple of weeks to figure out what the plan is but we have what's called a burn down because it's not really park inventory. We don't think it's a finished goods inventory finished structures inventory, where there's just got ahead. They tried to meet air buses expectations, but herb.
She's not able to produce the airplanes. They wanted to produce not because of emirates, or safra, but because of the dozens and dozens and dozens of other supply or you're just not being your expectations. I just gave you that information.
40 airplanes per month for the first five months of this year, that's a very low number and that's not what they want not many expectations. So what happens to all the good suppliers, they really try to support Airbus as they get stuck with inventory and that's what's happened here.
That inventory needs to be burned down and I don't think it's our inventory, we'll get we need to get the details and facts, we did sit down with mras and figure out okay. How much inventory we're talking about.
And here's the key thing, what's the burn down plan.
Over what period of time as the inventory how much is it is going to be burned down.
Until we have that information.
We don't really know what we're gonna be looking at in terms of our G program sales for the short term it could be a fairly.
You know a week really light for next couple of quarters, but we don't know and I don't want to guess I mean is it really no point in doing that so towards a better thing would be to explain to you the situation rather than guess at something that would not be meaningful because it would just be a guess I would expect that D. G aviation program number to be down I, just don't know how much you'll be down.
We don't and we don't know how long it'll be down.
The good thing is that inventories are finite there's.
There's a finite amount of inventory can be quantified.
So if we're effective at this week meeting us mras and maybe their customer we should be able to come up with a fairly.
Incredible.
Incredible burned down plan.
When we get to our next water will have that information, we will be able to tell you. Okay. This is what happened in Q2, but also what's your expectation lets say for Q3 and one the burn down will be done.
So just for reference if you look at the current rates for a day through 'twenty. The other global 7500 Commack airplanes.
Let's say you the inventory gets normal normalized it should be kind of warm or less at the rate of last year 23 million $22 million. So that's one thing to normalize once the inventories normalize once the inventory is burned out and then our rates will align with the end market rates in other words their production rates for these airplanes.
Okay. So I just wanted you to have that perspective that we have here is an event that is going to distort our numbers temporarily we don't have the detailed information yet to be able to share with you.
The key thing is once the inventory, which is finite it's normalized.
Our sales will be aligned with the end markets our production rates.
At this point based upon today's end market production rates that is kind of like that $23 million number for last.
$20 million to $23 million for last fiscal year.
So, let's see I think that kind of covers this issue.
We should just go onto the.
Next group of slides. So what are we doing here, we're going over what we went over in our Q4 presentation. This outlook we call it.
And I'll explain why we're doing that after we get through go through the outlook again, but the reason is that we you know I'll give you a little bit of a of a.
A.
A J a teaser rates like his look close at the reason is that we didn't really know if people are or what are you doing sorry investors got it you know in quotes again.
So we won't go through all this a preliminary information in great detail. The first item on 26 were saying, we really not in a position that I've been talking about the burden that we just spoke about to kind of give you year over year forecast because it's so uncertain as to when things will ramp up because to watch the supply chain issues like I said Airbus says, they're going to be.
75 within 26 are they we don't know.
And that will drive a lot of the year over year, our predictions for us a forecast for us we'd rather talk about okay. We know or we believe anyway that some point these issues normalize supply chain issues staffing issues inflation issues trade issues all of the things we're talking about at that point then.
And it will be.
And dealing with more of let's call. It a normalized market. So for that reason, we're providing an outlook on the theory that these things will resolve over the next few years and then we'll have better visibility into where we're going so let's go on to slide 27 trucks Slide 27. Just says these are the assumptions, we're making I'm just going to cover them already shouldn't go through those again flat.
28, let's slow down here a couple of minutes because this is something important.
So [laughter].
How do we do this we just looked at the programs and we.
We assume certain rates for a daycare funny Neil that's that 10 80 number that's the 75 airplanes for months at a 60% leap market share and the revenue per engine that comes from our customer. So this is just math you can just multiply across and the same thing with the passport 20, So I think.
That Bombardier has been producing about 40 airplanes a year for last few years. So when you thought maybe moved up to $45 90 engineers two inches per airplane 919, remember I told you, they're predicting 150 airplanes and per year at five years, well, we're assuming 100, yes. There was again two engines now why do we feel.
Well the <unk> hundred 20, Neo which is another single aisle, you're talking about being 900, a year the triple sorry, there's a seven seven Max you're talking about being at 600, a year. So 100 year, we thought wasn't too aggressive and really like us like we said, it's a function of how they were able to ramp up.
Really the market the limitation or the issue for C&I and one that is not the market is how quickly commack is able to ramp up here Jay 21 last year. They produced a they shipped a 26 of these airplanes. So that would be no tongues too. So 50 would think it's really conservative jeannine extra not giving you the details because we're kind of protected.
<unk> challenge that program, but we think the assumptions, we're making are quite conservative in terms of units. We do have the revlimid Frenchman number. It's just the units that we don't want to disclose at this point now.
We were wondering about why you just didn't have more of an impact as well as the next slide which is the outlook for park.
So we thought about this and you know we received a lot of books from investment bankers with these are you know offering memoranda.
With forecasts that are basically hockey stick forecasts.
Somebody who's doing $30 million of sales, but two years, you know, they're gonna be 60, or EBITA St kind of no.
Steep ramp up hockey stick and a lot of that's really kind of fantasy stuff, it's not real.
Well, that's a little different here what are the chances we're gonna lose dates 20 Neo program.
You know.
I mean, I guess, you never say zero, but I would say less than 1%.
So this is not predictions hopes and dreams. These are programs aren't the only question is how many.
Airplanes Airbus producers with the leap engine. That's the only question that's meaningful this is not a hockey stick.
And this is not hopes and dreams. These are reality things that we're talking about programs are on qualified on sole source. So I just wanted to explain the basis of this and that's how we get to this $50 million 625000 per year number let's go on to slide 29 lets stop here for a second as well there's some stuff we shared with you.
Last quarter, we just take the baseline. This is a park outlook. This outlook on our forecast we would take the baseline year last year $54 1 million sales, one 5 million of EBITDA. When we look at the Oh Gee programs are incremental sales that she has taken that 15 million 50 million 625.
Number from the prior slide.
Slide and subtracting the twenty-three revenues as the incremental revenue 28 million a $20 million from these other three programs, which we think is a pretty conservative number there was a comment that maybe just numbers aggressive and I would say we completely disagree with that we believe this number is actually pretty conservative.
Now Angi a program incremental sales 8 million and we just took the baseline from 'twenty three which is about three 2 million assumed about 5% year growth or 25% over the period through the outlook ear to the outlook of your $20 million. We think that's a start ignoring you think that's a pretty conservative under 10 million in total and then EBITDA.
Where do you draw a contribution from new incremental revenues, we assume 37% of contribution percentage in the Madden I did the math pretty carefully and.
Probably a good number not an aggressive number that's for sure money be little conservative adjust.
Adjusted into our base your EBITDA two 5 million. This is assuming that the things we talked about at the beginning of the presentation. It's affected our margins in Q1 in prior quarters that those things normalize $2.5 million. We think is a good number but also a conservative number that's how we get to the 38 $35 million of EBITDA.
So onto slide 30, we're not gonna go over these footnotes, we kind of just went through them. These are just explanations as to how we did the math, let's go onto slide 31, we'll stop here for a second because this is important stuff park for their solid presented okay. We're just principally based upon growth estimates are programs on which Parker sole source qualify.
Okay, what does that mean the above outlook is a not a forecast. It's just an outlook. It does not considered a growth on these programs and we have a whole list of these program opportunities here. These are examples.
This analysis does not consider any other revenue opportunities, including for example, rebel and opportunities related to we're not going to cover each one of them second one film adhesive except for the.
<unk> hundred 20, Neo we're not considering any film adhesive.
Going down to the middle of the page the structures assemblies integration project, which part because this is in serious discussions with existing customer significant potentially very large significant I mean, our revenue wise and excellent technology license agreement under discussion with a large OEM related hypersonic missile systems potential.
Very large I'm talking about lots of lots of dollars here.
Last one out of three missiles.
Defense system again, essentially very large we actually covered that in the slide relating to some of the niche.
Aerospace military programs that were.
We're feeling let's go on to slide 32. So why are we doing this why reviewing our financial outlook. Let's go through some history February nine of this year, we announced that we're at the board of directors had approved increase in our regular dividend.
And the stock price.
Reacted we thought appropriately market response to the announcement made sense. What you think the stock went up to about.
16, 90, and that would be equivalent to 15 90, because there is a one one dollar a special dividend that in between the announcement and the current market price. So 15 99.
March two.
<unk> 2003, S&P announced that where they're leaning our common stock from the S&P Smallcap index and that pretty much wiped out the entire gain and we didn't feel so good about that we also mentioned to you last time well those are other companies in the S&P Smallcap index, how many pay dividends and how many.
Paid over $28 a share since 2005, probably my maybe none.
Now, obviously that has an impact upon our stock price and our market cap.
But continuing on May 11, 2023, that's when we announced our Q4 and that's what we provided you with this outlook. We just reviewed went through it again, because we thought maybe it wasn't we didn't make it clear.
We explained at the time. This is key that the financial I'll look form the basis of the board's decision to increase our regular dividend and that's why I try to forecast. We did this outlook and we were we review with the board when we decided to increase our regular dividend because we were looking at hoping dreams, you're saying look this is an outlook. This is kind of like what we consider to be pretty good thing.
You wouldn't say sure thing you would ever say sure thing, but a pretty reliable thing you can count on it. So yeah. We had we were very comfortable increasing the regular dividend that basis, let's go on to slide 33.
What was the work of response to the provision of our finish outlook not much which surprised us a lot we didn't understand that.
Well I was just such a muted reaction we're not sure. It's a market of fishing you know the theory that the markets are fishing is kind of like there's big computer that takes into account all the data all the information that comes out with the you know the right company value as the market broken maybe a what I consider to be a very smart institutional investor met recently mentioned to me.
You're supposed to Mark was broken.
Maybe the investing public just doesn't believe US maybe you don't believe that our outlook is real even though we've explained again, it's not a forecast we're talking about for the most part quote programs are already sole source qualified on.
And we're not talking about it he goes all programs. We listed a couple of slides ago that are significant programs some of which my guess it will have a big impact on parks future.
But we believe us maybe the market doesn't so shortly after we announced Q4, we implemented rule tend to five.
One company stock purchase plan with a need them under that plan through the end of our Q1.
We.
We purchased under about 129654 shares of common stock at a price of coal at an average price of $12 80, some cents total cost of 1.668 million.
The key thing here is that that through the end of this first quarter that it was only two weeks from when we implement the plan to win the first quarter ended really talking about what happened in the first quarter and that amount was the maximum we were allowed to purchase under the plan under the SEC rules and regulations.
Let's go on to slide.
34.
So purchases that occur are there if any in our Q2 will be slowed we report that quarter were not talking about that now we told you in a passionate somebody didn't like this we prefer that the investing public we prefer the investing public the buyer come destock, but since that did not seem to happen in a meaningful way in response to the provision of our financial outlook.
The investing public during our Q4 Investor call. We did we went and did that we'd prefer the you know the investor community Investor responded.
But it didn't so we did.
Let's go on to Slide 35. So this is a change of gears here or would you kind of did give you an update now but that's at the end of the quarter Q1, we had $81 million of cash we still have that $12 5 million dollar transition tax installment payment payments after you've made and everything there to be made within two years.
Cash payments made in June of <unk> 20.
25, so that money won't be around for a long solution treat or for the ADL project 6 million Joint development project capital investment of $5 million. This is kind of a derivative of what we used to call. The ERP project. The difference here is that this would be working directly with the customers joint development project.
Buybacks, well, we'll see what happens with that.
But.
It looks like cash remaining after all the stuff is about $57 million. We just want you to see that number for perspective, let's go on to 36.
Our balance sheet.
Cash and capital allocation, we have zero long term debt you know the story about our cash dividend. So I won't go through it except I mentioned again, it's been $583 million that we paid cash dividends since fiscal 2005, our thoughts about our cash and capital allocation.
So that could change gears for a second here I know it's late we've been it's you know who are 55 minutes into the call, but if something came up I guess after we announced I think after you announce Q4 in.
Two different institutional investors called me and they're good people.
So I'm not I'm glad they mentioned it to me and most of that to me.
Ryan you know you're underpaid in and we should pay yourself more and then I think their point was then maybe we'd park would be inclined to do more buybacks less dividends I think that's where they're getting so nobody's ever said that to me before and I'm glad they did because you know when two people say something like that within three days of each other and I don't think they were talking.
Each other maybe other people thinking the same thing I don't remember ever talking about.
My situation, but let's just backtrack for a second I want to tell you something else I've been on the board since 83, and I can tell you with 100% confidence that whenever the board is talking about dividends buybacks, what do with our cash never once.
Everyone's have I come up my my personal situation come up where my family situations. It's never been considered as never been discussed you're just not on the you know not not on the table I want you to know that well, let's go back to me alright.
I think my pay is two 'twenty I think that's what it is you can look to check the proxy statement I'm not 100% sure about that.
So.
You know in many years I reduced the PE and orders for the company to be able to afford to.
To pay for it maybe holiday gifts or additional bonuses for the workforce.
Some extent anyway every year without exception the board offered more money in bonuses every year have turned up or down and never accepted.
What's going on here and the board wants to pay me more of these two shareholder said, maybe it should be paid more well.
This may sound like a strange thing to say, but I'll say it since it's been brought up you couldn't pay me enough to do this job, it's just not something that could happen.
Sacrifices I've made the things that I wanted to do that it won't get to do the people I would have liked to have spent time with that I will not get to spend time with.
Yes.
Just a kind of a fact of life for me I'm not complaining I'm just telling you the reality.
I don't do this job for the money. So that's the key thing I'd do it be sick care about park I want parked out of a future. That's a key thing for me and I care about our people I care about our people a lot of love our people and it also care about the long term investors. So I just want to understand the motivation here I appreciate it the comment I appreciate it that somebody had to contact us.
For two people to actually tell me. This so it led to my thinking well, maybe I should kind of here in this out a little bit and not keep at it.
Let's say quiet, let's go onto 37, so we're almost done here.
Yeah.
The park family the secret to our success to following its an extra from recent message the parks family I'm not going to read it.
Read it if you'd like at your convenience, but the key thing here is that.
The parks family culture is really everything for us without our parks family culture, we would be really nothing would be lost.
Let's go on to slide 38 in the parks family, we go for greatness and a path to greatness is arguing and difficult and hard.
Others may settle for mediocrity Park.
Like the others at.
Our parks, we play for keeps and we are now in our 17th year of playing for keeps.
So you know our tradition of every quarter. We are sure of photos whenever teams. This is the special we called PARP [laughter] Parks Special R&D group I'm not going to provide you. The names as you know and I will make it easier for the people to ourselves to steal our people.
But outstanding job by our R&D group developing two formula someone he's a formulations.
Under chemistry formulation of R&D is very challenging we've been doing this for a long long long time, even electronics and the large majority of project groups are started it never gets to the finish line. So the fact that we developed two formulations, one of which we commercialize it.
Road here and one of the other areas are being the process. So we're starting to qualification whenever it's like I said very very very good and we're working on other projects as well not just these two but these two are outstanding.
And then something else what about doing a film adhesive trials qualification runs internal qualification runs we havent had to work for us to do that so who did it the R&D group.
They staffed the qualification runs and Cros and the <unk> families of qualification and trial runs and what about the new plant. You know we have a new clinically qualified well you Gotta do trials in qualification runs for new plant within the staffing to do at the R&D people stepped up and they did it so remember at the beginning of the presentation I say we.
Do more with less well you know in our R&D group, but you can see if there's one person didn't wasn't able to make the photo op. I think he was out for the day. So this is our whole R&D group, we do more or less a standing and great accomplishments by a pretty small group of people I would say that I'm, saying that.
[noise] of experience actually.
So okay well. Thank you very much for listening operator, they're three questions at this time or be happy to answer them.
Thank you.
To ask a question. Please press star one on your kind of funky pop a confirmation tone will indicate your line is in the question you May Press star two if he would like time of your question.
I have felt parks offense.
These are equipment it may be necessary to pick up your handset while pressing this guy can stave off price for a brief moment.
For any questions.
Yeah.
There are no questions at this time do you have any closing comments.
Well, thank you everybody for listening and have a great summer.
And if you have any follow up questions that you want to ask Matt or me feel free to give us a call have a good day. Thank you.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
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Yeah.
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