Park Aerospace Corp.

Good morning. My name is Shannon, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. first quarter fiscal year 2021 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 the pound key. 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 very much, Operator. Welcome, everybody. This is Brian. Welcome, everybody, to our first quarter conference call. I have with me, as usual, Matt Farabaugh, our CFO. So I just want to mention that we announced our earnings, of course, this morning. and if you don't have the presentation up in front of me, you want to go get that. There's instructions in the earnings release itself as to how to access the presentation. Also, it's on our website, I think, under shareholders and maybe presentations or something like that. I'm sure you'll find it if you look. So you want to get that because that will make the call a lot more meaningful. Also, there is supplemental information which attaches financial information which attaches appendix one to the presentation itself. So, sorry, for those of you who attended or participated or listened to our fourth quarter conference call, which was on May 14th, you know that we went into pretty great detail about the virus and the economic crisis and the impact on the aerospace industry in part, and we're not going to go over all that again, and I think that would be... Not that productive. Unfortunately, to have the best context for this call, you probably need to have some reference to the prior call. But for us to go back over everything again, and we'd have a two-hour call, and I don't think anybody's up for that, probably me included not being up for that. So we're not going to rehash all of it. We'll do a little review with somebody and go over some updates. And then, of course, we'll answer questions. So why don't we just get right into it, and I'm going to be referring to the presentation and going through it for you and referring to it. and others. Slide 3, quarterly results, we're getting right into it. We have the history of the quarters for the last two fiscal years, plus Q1 is in yellow at the right-hand column, so you can see Our revenues, you can see our EBITDA, you see our gross profit and our gross margin a little bit up about 30%. And let's reference a little bit down lower on the page what we said about Q1 during our fourth quarter conference call on May 14. We said our sales estimate was going to be $12 million to $12.5 million. So we're at $12 million to $13 million. We came in kind of the middle of that range. Our EBITDA estimate was $2 million-ish. We did that ish stuff because as we discussed at great length during our fourth quarter call, a lot of uncertainty in our business right now and in the aerospace industry. So we put that ish on the end of the $2 million, and we came in at $2,364,000. So I guess that's kind of in the $2 million-ish range. Remember our forecast philosophy is when we give forecasts, We don't play what we consider to be a game of giving you a low number so we can be a hero. We tell you what we think is going to happen, assuming we're going to work very hard and do everything we can to make it happen. We're not trying to make it easy for ourselves. Okay, let's keep moving here. I want to go to slide four, our top five customers. This is for Q1. And if you remember, these actually are the same customers that were the top five customers for last fiscal year. This is alphabetical order, so we're not commenting on the order, except I think you all know that MRAS is going to be the top customer for PARC. AAE Aerospace, so that's for ablatives, the PAC-3 missile. You see that, the picture, a nice picture of that on the top right. And that's the latest generation of what used to be called a Patriot missile, which is designed to shoot down hostile incoming missiles. Remember during our Q4 call, I mentioned that we received 25 letters from the Department of Defense from military contractors saying we're expected to stay open. Well, this might be an example as to why we're expected to stay open. I doubt that the military wants to run out of Patriot or Pac-3 missiles anytime soon. AR Corp., multiple programs, maybe interiors and things like that, floorboards, aircraft, culturing program is one of them. Kratos, that's an important customer as well. And we are the main supplier, maybe the sole source supplier, I'm not sure, but main supplier anyway, for all the drone programs. Those are tactical drones and the target drones, including the Valkyrie, which is depicted in the bottom right picture here. Then there's Middle River Air Structure System, MRAS, which was a subsidiary of GE Aviation, but that was sold last year at MRAS. Sorry, MRAS was sold last year at SD Engineering Aerospace, which is a large Singapore-based aerospace company. And we have a picture of the COMAC 919, which is one of the, on the bottom left, which is one of the MRAS programs. New Orleans Group, multiple programs. Actually, one of the items is sea aviation for their engines. Another is weathermaster radomes, which would be for, I think, for Boeing aircraft, maybe others as well. Let's move on to slide five, if we could, please. So, we'll do a little comparison here. Kind of interesting, I think, to look at our pie chart. Remember, last quarter, we kind of took our which had kind of more breakdowns and simplified into three key areas that you thought would be meaningful in terms of understanding our business. So the top pie chart is just a pie chart you saw from our fourth quarter presentation. This is for last fiscal year. And we put the revenues on the side just because we want you to have a perspective here. Then we go to our Q1 pie chart. It's very interesting. Remember Q4, and we said we're going to focus on military. That was one of our objectives. So, obviously, military percentage went way up. Partly because commercial and business aircraft went down, so military obviously went up. But do the math here for a second. Just look at the dollars. Forget about the percentages. So, last year, 35% of... of the 60 million. That's about 21 million. I think that's the number. In the first quarter, 53% of the 12.2 million. That's 6.5 million. That annualized to 26 million. So in a very tough market, we actually grew the military segment dollar-wise, not just percentage-wise, quite nicely. Some of it's luck because some of it's just timing in terms of when the programs are are produced because it's lumpy. You know, there'll be a quarter when we're producing one program, next quarter maybe not. But nevertheless, a nice job by our sales people, all three or four of them. We have a pretty small sales group. Because we're a sales group, though. You saw the announcement, I think, a couple days ago with the new sales guy. So that's good. So let me see if there's anything else. No, let's keep moving here. Let's go to slide six. So slide six and seven are really pretty much slides that were in our Q4 presentation. And you see up top it says revisited because we thought, well, let's take a look and see how we're doing. We were talking about different factors, different effects. What will, you know, the recovery of the different industry segments, aerospace industry segments we supply into. Military, we hear there's supply chain disruptions that haven't affected us really very much. We've heard about them, for instance, with respect to the F-35, a program we're not on. Park programs seem fairly strong and steady so far. And as we already said, it's actually even better now. We grew our military business, not just percentage-wise in terms of the pie chart, but actually dollar-wise. in Q1 as compared to the quarterly rate from last year. Commercial aircraft, so this is, you know, the big kahuna for PARC. Ejecual prices, remember we spoke about that last time? Well, that's actually gotten better. I haven't checked this morning, but yesterday it was lower, $40, not to Ejecual. The approved is $40 for a barrel, but obviously that's going to drive Ejecual prices, meaning the lower prices are a disincentive for airlines buying new airplanes. Reopening the Economy, Economic Recovery. So we've come a little bit of a, you know, what is it, two months? It's almost two months, maybe seven, eight weeks since your last call. And, you know, things have developed, so the economy's being reopened. One concern I want to highlight, though, is that these quarantines that are being put forth by these different governors of different states, I'm, you know, quite concerned about it. I'm quite concerned that it actually could Thank you for joining us. Thank you for joining us. But with all these quarantine orders, we're concerned about the impact. Because, you know, you can't travel from one state to another without locking yourself down in quarantine for two weeks. You know, it's kind of a pretty big disincentive for doing that. So we'll have to see what happens with that. But I just want to flag that's kind of a new thing, and it's concerning. So I don't know. I just want to flag that. Down to the bottom of the page, we're going to cover everything here because, like I said, this is really a slide from last quarter. We just wanted to update you on it. So generally, the news is actually pretty good. The commercial aviation industry was improving a little bit more quickly, I think, than most people expected, not to where it was, you know, before the crisis, but people are getting back on planes. Let's see what happens with these quarantine orders.

Single aisle at the bottom versus wide body.