Park Aerospace Corp.

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the PARC Aerospace Corp. Fourth Quarter FY20 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like 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 pound.

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

Thank you, operator. Good morning, everybody. This is Brian. With me, Matt Farabar, CFO, of course. Welcome to our fourth quarter conference call. As you probably know, there's a presentation that we're going to go through today. It's posted on our website, and you really want to get a hold of that presentation, get it up on your screen, so the call will be much more meaningful that way as we walk through it. Also, there's some supplemental financial information that's attached to the presentation as Appendix 1. So what we're going to do today is cover our fourth quarter numbers. We'll talk about the pandemic and the economic crisis and the impact on the aerospace business from our perspective. We'll talk about the impact on PARC and our perspective on it. and then we'll also talk about, sorry, what's going on at PARC. I just want to warn you that this is a pretty long presentation. There's a lot to cover, we think. And, sorry, it could take, I don't think it's going to be an hour, but it could be close to an hour. So just be prepared. At the end of our presentation, of course, we'll take any questions that you might have. So I think that covers the preliminaries. Why don't we just go right into it because, like I said, we have a lot to cover today. So the slide two is our forward-looking disclaimer information. We're not going to read it or discuss it, but if you have any questions about it, you let us know. Slide three, so right into our Q4 results. So let's just talk about it. The sales for Q4 were $15,494,000. You can see that in the right-hand column. And what we said in our Q3 conference call on January 9th, with the sales would come in between 15 and 16 million. So we came in right in the middle of that range. And during that same conference call, we said our EBITDA estimate was 3.1 to 3.6 million. We came in 3,612,000, so a little tiny, tiny bit above the top of the range for Q4. So let's just go back and talk about Q4 for a second. But first, I just want to remind you about our philosophy about these forecasts. So a lot of companies we know The agents process where they put up numbers that they expect to be. And to us, it's kind of a silly thing. When we give you numbers, we're telling you this is what we think is going to happen. We could be wrong, but we're telling you the truth. This is what we think is going to happen. Actually, one of our principles is integrity, meaning that we tell the truth. We don't say it's X minus 3 if we really believe it's going to be X. So then when we come in with X, then we're heroes. We don't do that. So when we give you a number, we say this is what we think is going to happen. Now, not an easy number. We think it's going to happen. This is what we think is going to happen based on what we do is work very hard and bust our rear ends to get the job done. And Q4 was no exception. It's like ancient history to me, too. But if you go back to the third quarter conference call on January 9th, remember we were saying we had a real problem with a fiber shortage at that point for Q4? It wasn't pretty. So finally fiber started coming in in January, but most of our fiber needs to be woven. So just because it comes in, it doesn't mean we can use it. We have to still have it woven, and that takes another week or two. So we had to make the quarter, if you will, in the last couple of few weeks of the quarter. So when we gave you these numbers, we were thinking we were really behind the power curve at that point on January 9th, but we nevertheless said we're going to get it done. Sometimes we get it done, sometimes we don't, but we do have another principle is we do what we say we're going to do, and we don't always get it done, but it's very important for us to live up to what we say we're going to do, do everything possible. In this case, we did, even though we were way behind the power curve. So our people did an excellent job in getting the ball over the finish line by the end of Q4, and actually we gave our hourly people a little bit of an extra bonus, and what we paid for that was our salaried people took a reduction in their bonus, the year-end bonus, to pay for the hourly people bonus because we wanted to recognize the great work that hourly people did, our production people did, to get that ball over the finish line for Q4. Okay, like I said, probably seems like Asian history to you, but this is our Q4 conference calls we want to talk about a little bit. Let's go on to slide four. So this is just our annual numbers. We just did everything up. for fiscal 2020. Our sales were a little over $60 million. Our EBITDA was a little over $13 million. I won't spend a lot of time talking to you about slide four. I guess I would just maybe say I think the top line progression from 17, 18, 19, 20 is interesting, at least it is to me. Why don't we keep moving? So let's go on to slide five.

So something a little different here in slide five.

We have our pie chart graphics, which are updated for fiscal 2020. of 2020, but there's a new graphic on the bottom right. The bottom left is the graphic we've used in the past. When we go through the top five customers, either for the year or not for the quarter, this pie chart in the bottom left will be helpful, so let's do that. First one is AAE Aerospace. That's going to fit into that rocket, motor, and nozzle section, so that's the programs that AAE Aerospace is going to be feeding into. We've spoken about those programs sometimes. We can talk about them. Sometimes we can't. They're all defense-related programs. AAR is a larger company that does contract work for different OEMs. In this case, it's probably a lot of interiors and maybe for business jets, maybe like Gulfstream. So that might fit into that business jet category, business aircraft category, rather. Freightless Defense and Security Systems, very important customer.

We're happy to have them as our customer.

were told that we're the main supplier of pre-made materials for their drones or target drones and their tactical drones, including the Valkyrie, the new Valkyrie, which I think everybody's pretty excited about. Kratos is going to fit into that drone category. See that drone category in the bottom left? Middle River, Aerostructure, MRAS, you know who they are. They're the jet engine group, so we're not going to spend a lot of time with them. Nordam, they do work for a number of different OEMs, but in this case, mostly for jet engines, for GE Aviation, and also some radome work. See radomes is also in the bottom left pie chart. Now, there is a reason for the bottom right pie chart. You'll see as we progress through the presentation what the reason is because we think that will be helpful in giving us perspective on where we're going in the future. But let's talk about how we get from the left to the right. So jet engines, that actually breaks down into commercial and business aircraft. mostly commercial, but we also have GA Aviation also has or one of the GA Aviation programs, I should say, is the Passport 20 for the Bombardier Global 7500, which is a business aircraft. If you look at next going, let's go kind of clockwise, drones, that's going to go into military, all military. Radomes is going to be partly military and partly commercial. Business aircraft, of course, that goes into business aircraft. Rocket Motors and Nozzles, that's going to be all military and military copies of military. So we took a different perspective on the bottom right and we'll go back to this bottom right pie chart throughout the presentation and you'll see why as we get there. Okay, let's go on to slide six. So we're going to talk about the impact of the pandemic and the economic crisis on the aerospace industry. Okay, sorry. How will the pandemic and economic crisis impact the global aerospace industry? How will it impact PARP? It is not possible to quantify the impact at this time, but the impact is and will be significant. There are four key questions that need to be answered in order to really get a handle on, you know, the degree of the impact and the length of the impact. How deep will this event go? How long will it last, this economic crisis? What will recovery look like? and what will the global economy and the aerospace industry look like on the other side? Well, those are big questions and the problem is of course nobody really knows. A lot of people have opinions and you can listen to a lot of opinions but they're not consistent and I think the real answer is that most people are just guessing. Observations and perspectives on impact of crisis of aerospace industry. So now you'll see where this new pie chart fits in. First, military. are seemingly limited so far. For us, very limited. It seems like the military segment of aerospace is hanging in there, as they say. Commercial aircraft, the impact is very significant. Airlines, obviously the commercial aircraft manufacturers are selling airplanes to the airline industry, so that's why it all is tied together. A large number of airplanes are parked. Many, many flight cancellations and flight loadings are very light. and we get to the next page, slide seven. Let's talk about the aircraft and engine manufacturers themselves. You have furloughs, you've got temporary plane closures, significant reductions in rates. So all these things are in a negative column so far. Business aircraft industry also impact very significant. Dramatic reduction in business aircraft flight operations, furloughs again, temporary plane closures, you know, kind of a very similar story as the story with the commercial aircraft manufacturers. So let's go to our pie chart again here. So you see it has relevance. Military, that's about a third of our business, maybe a little bit more than that. This is an area we'd like to actually grow military. So we're very happy that we have the military content we do. We'd like to have a little bit more of it. So military, we'd say at this point, that's pretty good, pretty safe. Commercial and business at much risk, much risk for commercial and business because of the economic downturn. or Crisis, I guess we should say. It's more than a downturn, isn't it? Slide eight. So we're continuing to talk about the impact of the economic crisis on the global aerospace industry. Now let's talk about commercial and business in terms of what has to happen for these industries to recover, okay? Commercial aircraft industry recovery considerations. Check fuel prices. So maybe that's not obvious, but let's talk about that. Obviously, crude has been way down. and it's come back. It was negative for one day. That was kind of interesting. I didn't know what to make of that. Maybe you folks had better insight and perspective than I did. But it's still quite off from where it was a few months ago. And that's actually an impact, a negative impact for the aircraft manufacturers. Why? Because one of the motivations, one of the key motivations that the airlines have for buying new airplanes is better fuel efficiency. So, you know, when jet fuel is X, or let's say crude is at 60 bucks, good motivation. The crude is in the 20s, the jet fuel is significantly lower, the motivation is still there, but it's not as much. When an airline company buys an airplane, they have people bean counters their back. They do modeling, you know, and they put all the costs. They have to justify the airplane based upon an ROI, which takes several years, so they put a lot of assumptions in that model. What's the most key assumption probably? It's going to be jet fuel prices. So, objective prices are lower. It has an impact on those decisions. Okay. Some of the other ones are just obvious, but we'll put them down here. These considerations, recovery of the economy or reopening the economy, the economic recovery, social distancing on airplanes, airlines. Kind of interesting concept. A lot of talk about this. They're going to do social distancing on planes. They have seats at the gates, boarding, onboarding at the airports. A lot of discussion about how it's going to work, but I don't think anybody really has figured it out yet. A fear factor, that's really a hard thing to gauge. It's certainly a hard thing to predict because it's not fear almost by definition. It's illogical. It's emotional. But it's nevertheless very real. The fact that it's emotional, not logical, doesn't mean it's not real. It's very real. So what does it mean? A lot of people are going to be afraid to get on airplanes for a while. Some people are not. I mean, I know people go on airplanes. and some people are. And my perspective is the media certainly is doing a lot of help for us by staring at, you know, you know what, everybody. And that doesn't matter. But the fear factor is real regardless as to reason for it. Vaccines and treatments, obviously that's a big deal. The sooner we have effective treatments and vaccines, the more people are going to relax and the more people feel better about getting on airplanes. Here's an interesting question which we'll get back to. Single aisle versus wide body, which will recover first and more strongly? Most people feel that single aisle will recover more strongly. A single aisle is more for shorter flights, for regional flights, some international, but maybe shorter range, like going from, let's say, the East Coast to Europe. When you talk about going from the U.S. to Asia, now we're talking about wide bodies, longer range flights, and the feeling that the people are going to be a little less comfortable getting on The big planes, the wide bodies, to go for those long-range flights. So we'll see what happens. But there seems to be a general, I mean, everything I read is the same. It's very consistent in that regard. Probably nothing else is consistent, but that's consistent. Almost all the analysts, all the smart people say that single IELTS will recover first and more strongly.

Let's go on to slide nine.

Let's talk about I should go back and tell you the picture on slide 8. I want to get the pictures. That's an A320neo. This is the most important program PARC is on right now with Elite 1A engines.

Slide 9.

Okay, that's a very nice airplane. That's a Bombardier Global 70-500 with its Passport 20 engines, and that's a business aircraft. It's a big one. It's a very big one. So business aircraft, industry recovery considerations. Vehicle prices. I don't know. I've heard some analysts talk about that. I don't buy it. I don't think so. I don't think that's the real motivator. I think that the people who are buying these business jets, new business jets, aren't thinking of doing it because they're trying to get better fuel economy as compared to maybe their old business jet. I don't buy that. I'm going to say it's not a factor, but I think it's a pretty minor factor. Certain factors, certainly opening of the economy, economic recovery, corporate profits. Why is that? Because in a way, Nothing else, all the other stuff doesn't matter if a corporation is doing well. Other corporations may not be doing well, but if they're doing well, then they may feel an investment in a corporate aircraft is justified. Stock market performance, why is that important? Well, there's kind of, let's break it into two categories. For the real large corporate jets like the Global 7500, that's going to be, those are going to be purchased by big corporations. That's why the profit bill is important. Stock market performance. So you talk about smaller business jets that maybe cost $5 million or $15 million, and this global I think is like $75 million or something like that, so probably not in our budget. But the smaller business jets, often they're purchased by high net worth individuals or small private businesses. Where's their money? Their money's in the stock market. So when the stock market is good, they feel better. When the stock market is going down like today, they're not feeling so good. So there's that psychological factor. They might not even be liquidating their investments, they just feel poorer or they feel richer. That's going to be impact on, that could impact the decision as to whether to buy a business jet. Social distancing and fear factor concerns for commercial aircraft, will that benefit business aircraft? I would think absolutely yes. I think that's one of the main motivations now. for the people and companies buying business jets is that, you know, they really don't want to deal with the difficulties. They don't want their people dealing with the difficulties, not just the fear part of it, but the inconvenience of flying on the commercial airplanes. That's actually a reverse motivation for business aircraft. Will business aircraft recover before commercial? I think it might. I think it might for the reasons we're just discussing now.

Okay, let's go on to slide 10.

So we're going to talk about GE Aviation Jet Engine Programs. And this is kind of a case study to give you a perspective on what's going on for PARC in that, particularly commercial aircraft, but also business aircraft, those three sections of that pie chart we're talking about. You've seen this slide before. This is just kind of like a general overview of our GE Aviation Jet Engine Programs business, some updates, but top left, first item, We have that long-term LTA with Middle River Air Structure Systems. Now, we should explain that for people not clear. Middle River Air Structure Systems was, until about a year ago, a subdivision or a division of GE Aviation. That was sold to ST Engineering Aerospace, a large and very good Singaporean-based aerospace company. But all the programs that we work on through MRAS are GE Aviation programs. That's a connection there, a little bit less straightforward since they're no longer owned by GE Aviation. Redundant Factory, we'll talk about that later. So we're sole source in all these programs. The first four programs, let's call that the H320 NEO family of airplanes. They all have that LEAF 1A engine, that's actually CFM engine. And then there's the Boeing 747, COMAC, that's a Chinese company. There's the 919, which is single aisle, ARJ, which is regional jet. And then there's the Global 7500. which we've spoken about a couple times. Top right quickly, we do produce another component for the Passport 20 for the 7500, but that's through a contractor. And then also we'll talk about the 777X program. The picture here, 748, sorry, I'm rushing. I have so much to go through. 747-8 engine itself. The point of this picture, which I really like, is just to show you the size of these nacelles. You see that person in the background? These are huge structures. So these are really good programs for PARC because that's all made with PARC material. Those structures are very large structures, and it's not just the outside. We have things on the inside of the nacelle as well for which we reduce the materials. Let's go to slide 11. So let's update how we're doing with these new programs. So let's look maybe to say it better, how are the GE programs doing? So that A320neo family of aircraft, there's three aircraft, A320neo, A321neo, A320LR probably for long range, A321XLR probably for extra long range. All of those LEAP 1A engines, that's the common theme. They're the LEAP 1A engines. That's a CFM engine. to adventure for the GEU Saffron. Significant reductions in those programs. Bombardier Global 7500. Again, business jet, so that's one of those three, the two of the three sections of that pie chart where you say there's risk. Significant reduction. However, Bombardier recently announced the reopening of their plans, which were temporarily closed, so they obviously want to get back in the business of making these airplanes, these 7500 airplanes, Global 7500s. The 747-8. Boeing just announced, recently announced, no change in programs. They announced big change in other programs, but the 747-8, it said no change in program rates at this time, which we're very happy about. These airplanes are mostly sold for freight and cargo at this point, but we love this program. This is the first GEA invasion program we're on, and we love that program, even though it's relatively small. So next one, ARJ21. That's that COMAC program. That's a regional jet. Again, the CF, well, not again, CF-34 10A engines. That's a GE engine. No change in rates this time from what we're told. The COMAC 919, again, a Chinese airplane with Elite One C engines. Again, that's a CFM engine. No change in production ramp schedules time, but the ramp is still somewhat down the road. If you want to get more information about the ComEx plans to introduce the airplane, you might want to go on their website. They do have flying prototypes, but in terms of when their first sale would be, you could check their website. It has been delayed to some extent. We'll talk about that program a little later on. There's 777X with GE 9X engines. So this program is getting pushed out. All the POs we had for this calendar year were canceled. Production schedule pushed further out. Boeing recently announced a rate reduction to this program. There is a redesign risk. So remember, we're doing the containment wrap. Our materials go into something called a containment wrap. There's a possibility that the fan case will be redesigned so the containment wrap is not even necessary. The program can go away. So I'm giving you a lot of negatives here. But our focus is continuing on the qualification activities. I don't want to mislead you. We would love to be in this program, but I also just want to be realistic about it. There are risks to this program. This is not an MRS program. This is a GA nation program. We'd love to be in this program. It's a beautiful airplane as far as I'm concerned. So we'll see what happens. We're still working on it. We've already invested quite a bit in getting qualified in this program, and we're not done yet.

Let's go to slide 12.

So we're going to focus on the A320 NEAL program here. Again, to give perspective, it's kind of like a proxy maybe for commercial aircraft. This is a big dog for commercial aircraft. This is the big one. This is the most successful airplane ever, supposedly. And, I mean, the fact's the fact, obviously, just supposedly. Let's go through it. This is to give perspective again. So our fiscal 2020 revenues from the GAV, Jet Engine Programs, are $28.9 million. were 60 million. That's almost half, 48% of our revenue. So GA Aviation programs are important in part. And they're all in that. They're nothing for military. They're all in commercial and business jet. Approximately 60% of those revenues were estimated to be attributable to the A320 NEO family of aircraft. So 60% of that 29 million. That's an approximation and estimate. We don't have our data on that. but it is a number we feel relatively comfortable with as an estimate. So let's talk more about the A320neo, the largest engine order in history for the LEAP-1A engines for the A320neo aircraft family at last year's Paris Airshow. The A320 aircraft recently dethroned the 747 as the world's best selling commercial aircraft ever. The A320neo aircraft family was the fastest selling commercial aircraft in history until early this year when the pandemic and economic crisis struck the world. Here's a picture of the A321 XLR. Again, it's part of that A320 Neal family. Let's go on to slide 13, continuing with this kind of story here. The A320 Neal program has ramped significantly for Park for the last three years. Then we received another increase from MRAS to our A320neo program forecast earlier this year. So you get the momentum that's going up and up and up. Then, listen to this, in February of 2020, a few months ago, we received a letter from MRAS, and the Airbus had requested MRAS and its suppliers to perform an assessment of their abilities to support significantly increased production rates for the A320neo family of aircraft. responded in March indicating we'd be able to support those increased rates and we'd explain how we would be able to do it. It's not just yes or no. We have to explain how we could do it. Significantly increased rates. So you get the sense, you get the feeling everything's moving up. Everything's pushing forward, pushing forward, pushing forward. Upping production, upping production. When I say people, I mean companies in the supply chain for these airplanes. Upping production, upping production. Then, then, then. In March of 2020, The global airline industry collapsed as a result of the pandemic and economic crisis. So that was quite a wrenching event, from which there has not been recovery yet. Slide 14. On April 8, 2020, Airbus announced, this is public, you can look it up, it was reducing production rates for the A320neo family of aircraft by one-third to adapt to the new coronavirus market environment. Larabush dropped another shoe. A lot of speculation about that. A lot of people think, yeah, maybe they will. We don't know, but it's something at least that we should consider. MRAS has recently provided a part with rate reduction indications for an A320neo aircraft family program, as well as other GE aviation programs. Though the rate reduction indications have been somewhat inconsistent and unclear, they are significant, very significant nevertheless. So what's going on here? It's not MRAS's fault. They're doing the best they can, but nobody's getting clear information. It's confusing. It's difficult to sort out. They're doing the best they can. I just spoke to my counterpart there yesterday. So it's not like they're not doing a good job. It's just that the information is not clear. The supply chain, I think, is actually in a state of panic, maybe a little chaotic, confusion. So that's the environment we're operating in. What this means is that, let's go to the next item. The situation remains very fluid. Airbus and AMREPS production forecasts subject to change and likely will change. However, PARCC sales will clearly be negatively impacted by the significant reduction in production rates of the H-20U and other GE aviation programs. What does this mean for PARCC is that we're going to have to be very agile, very flexible, and be on our toes. My prediction is, and I'll bet anybody a dollar, I'm not sure I'm allowed to do that, on this one, that there will be lots of adjustments over the next six to nine months, ups and downs, ups and downs, corrections, overdoing and underdoing, overdoing and underdoing, overdoing and undoing, because everybody's very distressed, but nobody really knows what's going to happen. So it's a very challenging environment. So for us, our job is to be very flexible and very responsive so we can adjust quickly to the changes. Fortunately, that's kind of who we are. That's our calling card. That's what we do for a living. Remember, we have our culture steeped in the electronics industry. In the electronics industry, things change in two weeks. You have to be able to adapt. You don't adapt, you die. So it's a good thing for us that we have that history, the legacy history of the electronics industry. Let's keep going. Slide 15, how we doing on time? Okay, I'm going to try to push through here. I warned you, though, this could be an hour. Slide 15, so... Here's another thing that's very critical. In addition, park sales will be negatively impacted by a need to burn down the significant inventory held throughout the supply chain for those GA aviation programs resulting from the unprecedented steep ramp-ups of those programs from the beginning of calendar year 2020, followed by the precipitous, abrupt, and sharp reductions in the production rates of those GA aviation programs through the coronavirus. Let's think about what was going on here. There was a push to move up, to move up, to up production, up production, up production throughout the whole supply chain. Remember that letter from Airbus? Can you increase, give us a plan to increase your production dramatically after it already increased a lot dramatically just a couple months ago? And then the rug gets pulled out from under everybody. Guess what we have now? Everybody has lots of inventory up and down the supply chain. You know, it's not so much us, don't worry about us, but up and down that supply chain. This really exacerbates the problem and makes the difficulty even, you know, more challenging and more confusing. So, we have MRAS uses a company, a contract company that's kidding. They have inventory. MRAS has inventory. Safran has inventory. Airbus has inventory. All up and down the supply chain. And that's not just us. Of course, the other components have sold these airplanes as well. It's everybody. I think I heard that CFM has inventory. In other words, engines. So let's keep going. So what do the significant reductions in GA addition program rates and the inventory burndown mean for PARC? Okay, lots of questions here. How significant a reduction in GA addition program revenues? Don't know. How long will it last? Don't know. What will recovery look like? Don't know. What will it look like on the other side? Don't know. And we're not just going to guess to make you feel better. If we had any kind of meaningful confidence in answering any of these questions, we'd share it with you. We're not concerned about being held accountable or, you know, holding us to it, but we just don't think it's right to share any information with you because we don't know. Everybody's speculating about these things. You know, we get these reports daily from supposed industry experts and analysts about all these questions and they're all over the lot. and very emotional. You know, one day they're negative, next day they're not so negative. It's almost like a stock market in a sense. So, let's see. Thoughts about GA Ignition Program Revenues for fiscal 2021. We'll give you a little bit of information here, but we're kind of guessing. Just remember the perspective. Last year we had about $29 million of GA Ignition Program Revenue, which if you divide by four, that's, you know, an average of about $7.25 million. for quarter, $7.25 million per quarter, right? They're just doing the math. That's for perspective. Q1, this is kind of a transition quarter, but unfortunately, transition on the way down, probably $3.54 million, something like that. This is G-innovation program revenue. Q2, it could be $1 million. And what's the reason? Because all that burndown stuff is coming through. All that inventory that's caught throughout the supply chain is getting absorbed. There's not a lot of, you know, demand for, you know, at the OEM level. And then there's this compounding problem of the inventory throughout supply chain. So if it's like one million, that doesn't mean that's actually supporting the actual rates for Airbus, but there's the burndown problem, which is significant. We're not seeing much burn down in our Q1, but in Q2 there will be a lot of burn down. Q3 and Q4, just don't know because there's so many variables. We don't know about Q2 either. We're guessing. I just want you to understand that. We're guessing to help you out here a little bit, to give you some perspective. We could be wrong. Q3 and Q4, we're not even going to guess because there's so many considerations that could affect Q3 and Q4, like especially what happens to the aircraft industry. It doesn't start to get a little bit better. There's a little bit of light at the end of the tunnel. I know, oh, now there's no light. Next, no light at the end of the tunnel. It's kind of almost sad, and I shouldn't say pathetic, but it doesn't really reflect well on these analysts because next week they'll have light at the end of the tunnel. This week there's no light at the end of the tunnel. So I guess maybe what's the lesson? Don't spend a lot of time listening to the analysts. So let's go on to slide 16.

So let's talk about TORC's perspective on commercial aircraft industry, all right?

We kind of finished our discussion of GA Aviation. We already talked about single aisle versus widebody. The trend is already in place favoring single aisle aircraft. Industry experts and analysts believe, Mark, I just said we should listen to the analysts, but in this case we probably will, believe market for single aisle aircraft will recover before the widebody aircraft market. And I think that's... widely held belief, and there's a reason for it that makes sense. So in other words, you might say, well, if you want to be in commercial aircraft, maybe you want to focus most of your energy on a single aisle, although we have that 747, which we love, it's small, and we'd love to get that 777X. Again, that's a wide body. We may or may not get on it, but we'd love to get on those programs. So it's not like we're saying we don't care about wide body, but maybe you want to focus on the single aisle. If you want to be in commercial aerospace, single aisle aircraft is the place to be, at least within your term. That's our opinion. And three major, this is really important. You don't get anything from this presentation. Take this away. Three major single aisle programs. A320 NEO, that's the big dog. That's the one that's successful. That's the one that was the best seller in the history of the universe until the, you know, the coronavirus and economic crisis hit a few months ago. and then there's the 737 Maxwell. I don't think much about that. You know, you probably read a lot about that. Unfortunately, not a very pretty story right now. All these have LEAP engines, by the way, CFM LEAP engines. And here's one that's important, COMAC 919. This is that Chinese airplane with LEAP 1C engines. Now, this is a little bit delayed, but my feeling is this will be an important program for PARC. We're sole source qualified in this program like we are with A320. This will be an important program for PARC. because, to me, the Chinese prestige is all wrapped up on this airplane. This is a big deal for China to be a single-aisle player. They have the regional jet. They have the ARJ, and it's actually not doing so badly. It was delayed a little bit, but to me, this is a big deal for China. They've invested an enormous amount in this program, and I just don't think they're going to let it fail. So, to me, this will be an important program for PARC. You should look at the COMAC website. You decide how far it is down the road. So maybe a little down the road, but nevertheless, we think it's an important program for ports. So we check two of these three boxes here, and we think these are the boxes you want to check. If you want to be in commercial aviation, that means you want to be in a single aisle. If you want to be in a single aisle, you want to check these two boxes, and we do check those boxes. Let's go on to slide 17. Our strategy is to continue to emphasize commercial aerospace. We'll discuss that in another page or next slide or two, as one of our main market segments. As I said, we want to emphasize military as well, but commercial aerospace, we're not backing down to commercial aerospace. We're doubling down on commercial aerospace. We believe that single-aisle aircraft is a place to be in commercial aerospace, at least for now, and PARCC believes it's ideally positioned on the two preferred single-aisle programs. So we believe we're well-positioned in commercial aerospace industry. Now, maybe through luck, but we'll take it. Why do I say that? It's not like we're smart enough to have figured out a couple years ago that, look, we want to go after the 8 through 20 and the Comac 919, but not the MAX. We would have taken the MAX in a second. We just got lucky to be on the 8 through 20 and the 919 and not the MAX. But as far as I'm concerned, we are as ideally positioned as you can be in commercial aerospace. Now, if you don't want to be in commercial aerospace, that doesn't matter. That's not our decision. We want to be in commercial aerospace. So let's go on to slide 15, and we can talk a little bit, kind of a philosophical discussion. You may or may not be interested in this, about commercial aerospace. So the first item on slide 18. Is the human race ready to pack it in and resign itself to living in fear and isolation? We all live in our basements, you know, doing Zoom or stuff on, I don't know, our iPhones? I don't think so. I don't buy that. The human race, it is in human nature to explore and congregate. Virtual Living is Overrated. So human nature has developed for many, many, many, many thousands of years. Explorer, isn't it human nature to want to kind of know what's over the horizon? And not just want to know and look it on your iPhone or Facebook. You want to go there. You want to see it. You want to touch it. You want to feel it. It's human nature. And that's developed over many thousands of years. Human nature to congregate. People want to be together in person. They want to have that physical contact. So some doctor or scientist says you can't shake any hands anymore. Not very scientific to ignore human nature. It's developed over thousands of years and say it doesn't matter. It's so powerful as far as you're concerned that if you ignore it, you're being foolish. But it's a very powerful, you know, kind of force that's developed over many, many years. People want to congregate. They want to be together in person. You know, think about it. You want to do a telephone meeting, business meeting, that's okay. But isn't it always better to meet in person? Of course it is. These human nature things say, you know, commercial aviation has a place in the future. We're not all going to live in our basements in fear. We're going through a tragic crisis for human race with much despair and heartbreak. But sometimes good things can come out of the most devastating crisis. So it's not like we will feel, of course, we mourn the crisis like everybody else does. This is very tragic. I mean, most of us know people who are very badly affected and may not even be with us anymore. about this crisis. But nevertheless, good things sometimes come out of a very devastating crisis. We believe that commercial aviation and commercial aircraft energies will not only find ways to make people feel safe, but also provide them with more wonderful experiences of flying than ever before. So to me, this is kind of a watershed moment where it's not going to go back. People talk about, well, it will go back. It will never go back. It will go forward. And there's some, in my opinion, in my opinion, some airlines will not make it. and some will. The ones that will make it will find ways to make their passengers want to fly in those planes. Not only safe, but happy. A happy, wonderful experience like in the old days. Park believes that someday, we don't know when, but someday people want to fly in airplanes again. That the commercial aircraft industry will be one of the world's great industries for many years to come. We believe the glory days of aviation will return and we intend to be part of it. Okay, let's go on to slide 19. We talked about our long-term forecast. This is a forecast that was published at the Needham Growth Conference, our presentation at the Needham Growth Conference on January 15, 2020. The only change to it is we dropped in the actuals for fiscal 20. The rest is just a forecast as was presented then. Our long-term forecast is withdrawn. Why did we do that? We just don't know. And we'd be guessing. And we just don't think it's helpful or useful. for anybody for us to just guess. Why do we not know? Because all those factors we talked about at the beginning, all those factors which will impact how the commercial airspace and business aircraft industry will recover. We don't know. We don't know the answers to those questions. Remember to be in the presentation, we talked about all those factors. It's tough to make predictions, especially about the future. Yogi Berra, yes, he's one of the sages of the 20th century, so we need to listen to Yogi Berra. Fiscal 2021. So Q1, we only have a few weeks to go in Q1, so we'll give a little more information about Q1, even though, remember, it's an unfortunate pattern to kind of make the quarter in the last few weeks. So that's why, even when we have only a few weeks to go, there's still some uncertainty about the quarter. But Q1, we think it's probably $12 to $12.5 million, something in that range, top line. EBITDA, $2 million-ish. for Q1. Q2, we don't know. It could be revenue. It could be under $10 million. Remember, that could be that big burndown quarter. We don't know. Maybe a break even, maybe a little positive. But those are really getting to be almost guesses. What we'll do for Q2 for you is when we do our Q1 report, which should be kind of the end of June, beginning of July, we'll give you an update on how we feel about Q2. Q3 and Q4, same story as it was with GE Aviation. We just don't know, and we'd be speculating and guessing to give you any information on Q3 and Q4. Again, what are the big variables? The big variable is what's going to happen to the commercial aircraft industry? Is it going to start to get a little bit better? The key issue, I'm told, is cancellations and push-outs. Most of these airplanes, 8 through 20, they're booked for quite a while, and with deposits. So the key issue is not that they're getting more orders. The key issue is cancellations and push-outs. A lot of the aircraft companies have deposits on these airplanes, which could affect their decision-making in terms of whether they want to cancel or not. So that's something we need to be looking for. If you want to read an indicator, watch for that, see if you see any. A lot of cancellations for the age of 20. A lot for the max, but maybe that's because the max is not doing well. I don't know. I'm not speculative about that part of it. Our thoughts about our long-term forecast. Here it is. That's that pie chart again. It keeps coming back, doesn't it? We're not going to quantify anything for you, but again, military at this point seems pretty good. We're in a lot of really nice military programs. We're happy about that. It seems pretty good. are the risk areas of commercial aircraft and business aircraft, and we discussed it in DQ already. So, you know, we look at the forecast on top of the page. We still think that the basic drivers and principles are in place. It's just that there's a, you know, there's going to be a time lag, a delay. So the question is, how far to the right are these forecasts pushed, at least conceptually? And, of course, the answer is what? We don't know. Let's go on to slide 20. Yeah, 20. Okay, so what's going on at Park? We haven't even told you anything about Park yet. First of all, we're still operating, you know. We've been fully operational through the crisis. Our New York office is technically open, but all of our employees are working hard and effectively from home, doing a great job. By the way, we're going to file, I think, our 10-K tonight, or later on today. The year-end closing with the audit and everything ought to be done remotely, including with the auditors, so it was a little bit challenging. We haven't done that before, but our people got it done. They did a great job. Kansas Manufacturing Facility, fully operational throughout. It's an essential business in Kansas, exempt from stay-at-home order. But maybe more importantly, we're told by the Department of Defense we're expected to stay open, and we had 25 letters from defense contractors reminding us of what the Department of Defense said. My understanding is if you're exempt, you're essential, I guess, that means you can decide whether to stay open or not. But if you're told by the Department of Defense you're expected to stay open, that's not the same thing. That means you're expected to stay open. That's not your choice. But we're happy to stay open, very happy to stay open, delighted to stay open, and delighted to support these very key critical defense programs that we're on, some of which we can't talk to you about. You know, I find it interesting that the media is so New York-oriented, focuses on what? Restaurants, waiters, and hair and beauty shops, which are, you know, I'm not putting that down. Those people are suffering, too. What about the factory workers? I mean, there's a lot of concern, some fear, some stress. We have almost no absenteeism. Our people are coming in every day, doing their job, and we're supporting those defense programs, which you may not know about exactly, but I'll tell you something. It's important they're there for our security. You want to talk about security? Those are important programs, and our people are supporting those programs. I don't hear much in the media about our people or Heroes 2, yes, me. Safety measures in place in Kansas. Of course, these are what the usual things you'd expect. Masks, taking temperatures, prescreening us, our visitors, distantly disinfecting, just shift schedules so we can get a little more distancing, social distancing where possible in the factory. Good news is our county of Kansas still has a limited number of cases. I think maybe nine the last time I heard, which obviously is not like we're used to in New York. and very fortunately we've had no cases at Park at this time. Except to let you know, if we do get cases, there's a possibility we might have to close for a couple of weeks just to clean out the factory. And we did. We got ahead in our military programs in case that happens. We're doing everything we can to prevent it, but of course we can't guarantee it.

I just want you to know that.

And we're not saying it's going to happen. We sure hope it doesn't. We're not planning on it happening, although we have contingency plans. If it does, that'll probably be a tuned shutdown. Our people are doing great. Go on to slide 21. in Kansas, working on projects and new initiatives we could just not get to in recent years because we're driving our operations so hard. I know it's a common theme. You heard a lot about that from us. You probably got tired of hearing about it. We're taking advantage of the additional bandwidth we now have available as a result of the reduced production schedule. So there's a number of initiatives, a number of things we're working on, and all of them are good, and some of our exciting opportunities are par. R&D efforts, we're not reducing them. We're even attempting to increase them. I've heard some companies saying they're reducing the R&D efforts, the R&D program, our expenses by X or Y, not a part. We're not lavish spenders in R&D to begin with or anything else for that matter, but we're directing some of our freed-up bandwidth to R&D projects. I don't know if you noticed, but we recently introduced a new product, E752MTS, a mid-tough and epoxy proofread product. and this information was covered in the news release. And we hope to be able to make additional product announcements soon as we're working on a number of additional products at this point in R&D. Slide 22, still what's going on, major expansion in Kansas. We're proceeding with a project. Completion has pushed to the right a little bit, early 2021. Part of that was just weather, you know, had a real bad winter which prevented some of the construction a little bit because of the, you know, delays with the economy and virus. We're deferring some items. So the original budget, last budget we told you about, $20.5 million, probably down to $18 million, which we're deferring some of the items. And, well, while we're doing that, the reason we're doing that is it's actually a good thing because because of our reduced demands, we don't have that intense pressure to get the factory up and running right away. So it gives us the ability to kind of hold back on some of these things so we can make decisions three, six, nine months down the road as to what would be ideal or optimal for what we need rather than having this pressure that just we've got to get this done. You know, a year later, it may not have been what we really would want, and we look back on it, but we didn't have that luxury.

So we're taking advantage of that.

So that budget may come back up. You know, later on to that $20 million number or something close to it. But right now we deferred some of the items and we're retaining flexibility in some of the items where we don't feel we need them right away. It gives us the flexibility to decide later on what to do. The Deja Vu all over again, you know what, it's kind of a funny story, but I think I'll pass on it just because we're running out of time here a little bit. So slide 23, CARES Act. We've not applied for any of these benefits or loans. We don't intend to. It's just not right for us. You know, we part as significant cash, no debt, as we'll talk about. And we think that money should go to people who are suffering lots of heartbreak, despair, tragedy, and we don't think we should take that money. I'm not passing judgment on anybody else who has taken money. I'm just saying for part is how we feel about it. We're not taking that money. Park's cash dividend. Let's go into our cash. So Park has paid 35 consecutive years of uninterrupted regular quarterly cash dividends without ever skipping a dividend or reducing dividend amount. Park has paid $538 million in cash dividends, $26.25 per share since the beginning of fiscal 2005. $538 million. That's a lot of money for a small company like Park, don't you think? Well, this is always subject to change in part in the future. Our current intention is to continue our regular 10 cents per quarter dividend. Balance sheet, yep, we paid $538 million of cash dividends, but we still have $122 million of cash. No long-term debt. Is that good luck? Is it just an accident? I don't think so. I don't think so. So, you know, we've not taken any shortcuts. We don't cut corners. We built something from nothing apart twice now. We made money the old-fashioned way. You know, this may sound cliché, but if you live it every day, you feel it. It's palpable. So nobody ever gave us anything. We never asked for it. We don't want anything for anybody. But there's another reason that's not just good luck, and that's called discipline. We've been looking, as we keep telling you for the last couple years, at acquisitions. And we've also said it's very frustrating because the valuations don't make any sense to us. I mean, we looked at companies where they were sold for six times revenue. Six times revenue. And it's like, what? I'm kind of old school. How can that be? And these didn't have a cure for cancer. They maybe thought they had a cure for cancer, but we didn't think they had a cure for cancer. So the valuations just got to be wacky out there. But, you know, it's a pattern. Every time we looked at something, the valuations were just way, way, no, I'm not talking about 10, 15, 20% higher than we thought. I'm talking about three, four, five times higher than we thought was appropriate. And we kept getting told by the bankers and such that, look, you know, you really got to get in the game. You got to spend your money because you're missing out. But we had discipline. We did the right thing. We took care of a show of this money and we didn't waste it and throw it away because we got emotionally involved or excited. Let's go on to the next page. It's still following on the point about our balance sheet. Great opportunities for PARC to potentially buy a company or companies which are highly strategic for PARC. Not just any company, something strategic for PARC and very good or even distressed values. Now, we don't want to sound Machiavellian like we're trying to take advantage of somebody else's pain, but it's our job to do the best thing for PARC. So it's a really great acquisition opportunity and the values that are stressed, and we're not going to pay more than the value of the company. No, it could be one of the lifetime opportunities for us. I've spoken to some bankers about this. Maybe what I'm being told is we may have to wait three or four months for things to settle out before these companies become available. Right now, I think people are so confused on what to do. We'll see. It could be a really good thing for PARC to have that balance sheet, to have that cash, to have no debt. That cash is a very important asset for PARC, real value now. Great opportunities for PARC to invest in its own business and new business opportunities at a time others may be looking for cover. Really important thing to think about. Other people may be kind of hiding, hoping things will get better soon, you know, just kind of waiting, sitting and waiting. We're not waiting for anything. The world is now full of human tragedy and heartbreak, which we mourn deeply. But sometimes good things have come out of even the worst crisis. We believe PARC is well-positioned to take advantage of the opportunities presented by a global crisis, and we intend to do that. And maybe it sounds like it's cold-hearted or Machiavellian, but I don't think so. It's our job to do the best we can for PARC. We're not planning to hide in a bunker for the next few years. We intend to make this our time. So, again, I'm hearing that people are very deflated, very upset, and maybe want to hide, maybe want to even... retire. They don't want to deal with the difficult realities. But this is not our first rodeo. And in 1999 or 2000, I think our electronic sales were like $520 million. Next year, maybe $230 million, something like that. Get the point? And that was not because of an economic crisis. That was because the electronics industry got way ahead of itself, overheated, and it collapsed. We're not going into any bunkers. Others may falter, but Park is not going anywhere. Okay, operators, so we brought it in a little under an hour. If there are any questions, anybody still on the line, we're happy to take questions in this time.

And as a reminder, to ask a question, we need to press star 1 on your telephone. To withdraw your question, please press the pound key. And our first question comes from the line of Sarkis Sherbetian with D. Riley. Your line is now open.

Hey, guys. Thanks for taking my question. This is actually Ahmad. I'm jumping in for Charkis. So I wanted to ask, you know, you mentioned that military makes up 35% of your business. You know, whatever you could comment on. How do you expect the military and space program to grow for PARC in the medium to long term?

So we really want to get on more military programs and programs It's an important question because we're not looking to get on these big programs like the F-35, high visibility, which means that they're very over budget and very delayed and they're susceptible to reductions, cancellations. Look what happened to the F-22. All the military programs we're on are kind of niche programs, which I think are very safe and very important programs. We'd like to get on more of those programs. It's not going to, to me, it's not going to be like a GE Aviation thing where you get a $30 million per year military program. It's probably going to be a lot of programs, one after the other. We're very delighted with the Kratos program. We're very delighted with the Bladiff programs for the, you know, for the rocket nozzles. We're delighted with the drone programs, other drone programs. So we need to get out there and go find the opportunities which we believe are there. But, you know, I don't want to, you know, someone give you the feeling it's going to be like a one big event where, oh, great, we've got a $20 million program. We actually are not really looking for that kind of thing. What we don't want to do is set ourselves up for getting the rug pulled out from under us when these big programs, which are high visibility in Congress and every place else, we have the rug pulled out from under them. The programs we're on, nobody even knows about them. Nobody's interested, but they're very critical defense programs for our country, and we'd like to be on more of those. You know, this is a little bit of a wake-up call in a sense. Not that we're, you know, pulling back on commercial. We're doubling down on it. But I think we didn't have a real focus on military. We always liked military, but it wasn't a main focus of PARC. Now it's becoming more of a focus for PARC. I know that doesn't give you a real hard answer to your question, but I think that's probably the best I can do to give you some perspective.

That's very helpful. So I wanted to ask, you know, given your Strong Balance Sheet, and the current market dislocation. I mean, you did talk about M&A. But, I mean, do you anticipate putting that dry powder to work by M&A? And, like, where do you see PARC doing M&A? Do you think it's somewhere where you can maybe expand in your military business, or would it be somewhere in the vein of the commercial side? So...

Okay, so that's a good question. It may be both because, you know, we're a materials company, and often materials companies aren't going to be focused on one end mark or another. Now, we're actually a little unusual because we only focus on aerospace. A lot of our competitors do aerospace, they'll do windmills, they'll do construction, they'll do automotive. We don't do any of that. We just do aerospace. But when you're in materials, you know, aerospace materials are often going to be in defense and commercial, business jets, So I would look at it like that. We look at, okay, what is more strategic? What is more unique? What kind of products do we want to be in that we're not in now, which we feel have some kind of strategic maybe niche, let's call it, for the future? So it's not like a discussion you have with an investment banker where they just say, okay, you know, I'm going to put a nice graph on the screen and this is our chart and we want to be in this segment and that segment. We're way, way beyond that. We're much more into the you know, nitty-gritty of what does this really mean? You know, what would this acquisition mean three years, four years, five years down the road? What kind of programs do we want to be on? What kind of technologies do we want to be in? We want to be in hypersonics as an example. So, again, I'm sorry, I'm probably not giving you a real great answer, but that's probably, and the rest of them. and I suspect that their banks are going to want to get that money paid back. So we'll see. We'll see what happens. But we're definitely being overt about our interest in these kind of things and I hope people are aware of it. Maybe it's good to have this conference call because maybe other people are aware that we're looking.

Got it. Thank you. Last question from me. I just wanted to get a bit of color on your supply chains. Do you feel comfortable with the flow of raw materials to support parks operations in the near to medium term?

Well, it's an excellent question. You probably should have touched on that during the presentation. It's a real challenge managing our supply chain. We did issue a... about six weeks ago and we scrambled and we worked with MRAS. We qualified somebody else really quickly. So it's a lot of manager right now because, you know, the supply chain has all the issues everybody else does and some are doing better than others. Right now it's okay. Right now we're fine. But we need to be paying a lot of attention and we need to be looking at alternatives and contingency plans and that kind of thing. I would guess if I was going to have to predict something that you look for a year that the year from now I'm not going to say, oh yeah, everything's smooth, everything's great, no issues. I would probably say, yeah, we've had a lot of challenges along the way. Hopefully I'd also say we've found a way to overcome them and manage through them. But I doubt I would say just walk in the park and we have no issues.

Got it. Thank you. I'll pass it on.

Thank you. Thanks a lot for your questions.

Thank you. Our next question comes from the line of Christopher Hillary with Robase. Your line is now open.

Hi, everyone. How are you? Good. How are you doing, Chris? Good, thank you. Good. I'm going to miss some of your comments. I apologize. But I just wanted to ask, as you go through this period of kind of disruption, slowdown, is it presenting some opportunities for you to just increase your efficiency as you don't have to be in the in the rush mode that I think had been a challenge for some time. Do you see some ways to just run more efficiently, restructure your factory floor a bit, you know, those types of things?

Yeah, that's a good question. So, you know, it's kind of a two-way sword. As our revenues go down, then there's a part of it where you say you're using your factory resources less efficiently because your fixed costs are just being absorbed over less revenue. But it's a very good point. You know, we talked about fiber in the fourth quarter. It just drives us crazy. You know, we got way behind. And, you know, we had a forecast. The fiber supplier wasn't able to quite make it. made it very difficult for us in the fourth quarter, and there is economic inefficiency in getting everything out the door in the last two or three weeks. That's not a smooth and efficient way to run an operation. So right now, of course, we don't have that problem. We don't have the issue with shortages anymore. I'm sure our suppliers would be happy to give us more if we wanted it. And so it does give us an opportunity to do exactly what you're talking about, not just in terms of raw materials, but also in terms of how we operate the business. And it's something that I'm actually glad you brought it up. It's something we spent quite a bit of time on the last few weeks, kind of thinking through how do we do this, how do we better optimize our situation. So it's a two-edged sword. You know, there's part of it where you say there's, you know, less revenue running through your factory, less production, less coverage of fixed costs. But the other part of it is that at some point, you're running so hard that you're over the, you know, you're on the other side of the curve where your efficiency is going down.

Okay, great. And then you talked about it a bit, but just are there any other areas you might highlight where you think the business development opportunities are I think you alluded to it, but if you could comment further, that would be great. And thank you again, and I hope you all stay healthy and safe during this period. Thank you.

The same to you and yours. Well, I guess let me answer that question two ways. There's kind of internal opportunities that we're working on internally in the factory. and all those are interesting because they're things that were kind of always on the back of my mind you want to do. I'm not just talking about internal efficiencies. I'm talking about going to other areas, maybe other product line offerings or other service offerings that we just never were able to get to because our emphasis for the last couple of years is just get this stuff out the door, get this stuff out the door, keep the customer going, never disappoint the customer. And that emphasis has changed to the point where we've have the opportunity to look at these other opportunities, and we haven't done it yet, too. I think probably for the last three weeks, Ben and a couple of our folks in Kansas are kind of working together on, we have a whole list of things, and we update it every couple days, and we're doing stuff, too. We're pursuing some of these things. I really can't talk about them because they're a little sensitive right now, some of these opportunities. Then, of course, the M&A area, we've discussed it already, but What we want to do is not compromise and just buy something because, okay, it's aerospace. But, you know, the question is always going to be, how does this make Park better long-term? Why does this make sense? That's why I said we're interested in buying highly strategic companies as acquisitions rather than just, oh, they're in aerospace. So, and obviously at good values. So hopefully that answers your question at least a little bit. Operator, are there any more questions?

and at this time I'm not showing any further questions on the phone line.

Okay, thank you very much everybody for hanging in there. This is a record for Clark over an hour call. I'm kind of surprised anybody was still leaving on the call to ask questions when we got done with the presentation but thanks again for your interest. Appreciate it very much. Call us anytime and we'll be talking again pretty soon because Our first quarter ends at the end of this month, and we'll be announcing, I don't know when, but my guess is the end of June or early July. Okay, take care. Everybody, good wishes to all of you and your families. Take care of yourself. Be safe. But it would be good to get the country open as well a little bit, I think. Okay, take care. Thanks again for your interest. Bye.

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