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spk01: Good morning. My name is Michelle, 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 22 earnings release conference call and investor presentation. Our 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 the session, 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.
spk02: Thank you, operator. This is Brian. Welcome, everybody. Welcome all to our Q1 Investor Conference Call. I have with me, of course, as usual, Matt Farbrower, CFO. So, Park, we announced our earnings early this morning. You want to go check that earnings release because in that earnings release, their instructions as to how to access the presentation that we're going to go through now. In order to make this call more meaningful, you really want to have the presentation in front of you. The presentation is also available on our website if you want to do it that way. So what's interesting about this call is that it was actually less than two months ago than it was before, so there's not a lot of new stuff. There are some new things. We'll give you some updates. and we'll try to make it interesting by not having everything the same. Some of the slides are actually almost identical to the Q4 slides, but we felt we kind of had to include them for perspective. Some of you may be totally on top and remember every line of our Q4 presentation, but I suspect most of us aren't on top of it, so some of the slides will at least quickly go through just for the perspective. And, you know, like I said, maybe we'll skim through those, but they're there for perspective. The presentation, you know, could take about 45 minutes for Matt and I to go through, so I just want to warn you, partly because we're including a number of slides from Q4 just for that perspective and context. Then, of course, after Matt and I go through the presentation, we'll answer questions for you. Okay, so why don't we get moving. Slide two is our forward-looking disclaimer. If you have any questions about it, just let us know. Slide three, we assess a new year table of contents. So the first thing, slide one, is the presentation. Appendix one is supplemental financial information, which is something we've included in our presentations for several quarters now. Appendix two and appendix three are new, environmental and community considerations, diversity in the workforce. These statements, PARCC statements, are actually posted on our website. I think maybe early June we put them up there. because we suspect that a lot of people aren't aware of, you know, every last thing when it goes on our website, you know, and probably don't check it every day. We just wanted to attach these two statements as appendices to this presentation just so, you know, we bring it to your attention so you're aware of it. We don't, you're aware of them. We don't intend to go over them during this call, but we wanted to, you know, put it out there so you can see them. And like, you know, anything else, if you have any questions or comments, please let us know. Okay, let's go to slide four. This is gonna take a little bit more time to go through. So why don't we start with Q1. The numbers, sales, 13,594,000. And let's just compare that to Q4 for a second, because this is an important perspective. Q4 was 14,441,000. But remember, we covered this. Q4 included $3.5 million of that, That essential component, we keep talking about that for missile programs. So basically that's a pastoral. We have the relationship with the supplier overseas. We buy this product and we sell it to some of the customers and we charge a markup, but there's no production involved and very low margins involved. So really if you want to get apples to apples, you might want to subtract about $3.5 million from the $14.4 million, so that's approximately $11 million compared to the, for Q4, compared to the $13,594,000. Depends on how you want to look at it, but I'm just offering that for perspective. Gross profit, $5 million for Q1, $5,472,000. And gross margin, 40.3%, which to us is something, I don't remember seeing that maybe ever, over 40% gross margin. That's quite good. You know, we normally don't like it when our margins, gross margins go below 30, so above 40 is... It's quite good. The adjusted EBITDA, 4.1 million. I don't, 4,104,000. I don't remember how long ago it was that we had EBITDA above 4 million and a quarter. It's been a while anyway. You can look at the, you know, historical quarters. You don't see anything getting close to it. And 30%, 30.2% adjusted EBITDA margin, also quite good. And look at the history. You're not going to see anything like that. So let's see. What did we say about Q1 during our... May 13, 2021 Q4 investor call. You know, when we say about it, we said our sales estimate was 13.3 to 13.8. So our sales came in right in the range, which is good. That's what we want. And I'll explain that, I mean, by what we want in a second. Adjusted EBITDA estimate was 3.6 to 4.1 million. So we came into the top in the range, but let's say we're still within a range of, by, well, yeah, we're just at the top of the range. Now, remember a forecast philosophy, I remind you of this just about every quarter, is we don't play this what we consider to be a game where we give you numbers that we know we can beat so we can be heroes. We think that's kind of silly, it's insulting to you, and plus it violates one of our principles, which is we always tell the truth. And as we know, we could be wrong, we could make mistakes, but if we believe something, we're going to tell you. We're not going to tell you We believe X, we're going to tell you X minus, you know, 3% or something like that so we can be heroes. We know a lot of companies do that, and probably almost all of them do it, but that's not for us. So we just want you to understand that. So we give you an estimate, a prediction. This is what we think is going to happen. We could be wrong, but that's what we think is going to happen. We're not shading it to look like heroes. Certain factors which affected 2.4 and 2.1, sales and margins in 2.4, sorry, Lord mentioned that there was a $3.5 million in sales of the essential component for missile programs, very low margin, just a markup. And Q1, actually, was the other side of the coin, the other side of the equation, about approximately $1 million of sales of materials for those missile programs. Those are very high margins, so you see the flip there. Eventually, all those essential components will be used and produced and pre-preg and sold at Q1. at good margins, which that's the expectation. Q1, other factors, favorable product mix in some respects, and also cost factors, which were favorable for Q1. But that's only part of the story. First of all, there were no real unusual items or nothing special or unusual that pushed up the bottom line for Q1. Like we said, good mix. We had those those sales of the, we call it a blade of materials or materials for missile programs. And just want you to highlight, we'll get back to this later, that there was a very steep G ramp with no extra people. So it's easy to say, oh, it's a good mix and stuff like that. But somebody had to make it happen. And that's our people making it happen. Also with relatively low waste, you know, you increase your production by significant amounts. Actually, compared to Q3, Q3 compared to Q1, four times GE program sales, four times, 4X. That's a very, very steep ramp, and our people handled it and handled it really well. So Q1, we won't see those kind of gross margins and EBITDA margins for at least the next couple of quarters, but it does give us some perspective on what's possible. Now, cost side, we need to hire people. As you'll see from the presentation, we haven't been successful with that, but we're still planning to hire people. T&A will increase as one example of cost increasing because, you know, with the pandemic, we were willing to travel and nobody was willing to see us. And, you know, we'd go to call a customer. Well, we're not there. We're all home. So, you know, hard to visit a customer when they're not there. But we're hoping, you know, that will recover. So there's going to be some increase in costs there. as you go forward, which is what we want, a good thing. Let's go on to slide five. This is just historical perspective. Look at those gross margins, nothing close to 40%, and EBITDA margins, nothing close to 30%, even during those so-called good years like fiscal 2020. So enough on that one. Let's keep moving. Slide six. Slide six. Okay, Matt's going to take over on slide six, so go ahead, Matt, please help us out with slide six.
spk00: Sure. On the cash investment yields, I'll just let you know at the end of the quarter, cash and marketable securities were approximately $117 million, very similar to the fiscal 2021 year-end cash and marketable securities. PARC invests in highly liquid, high-rated U.S. treasuries, agencies, and corporate bonds. For Q1, our portfolio yielded 0.35%, so rates very low. This is reflecting the decreasing rates on investments in our longer-term investments maturing and as they get reinvested. So far this calendar year, until just recently, Treasuries, as long as three years, have been yielding less than that 0.35%. For comparisons, at January 1, 2020, Treasury yields for one year all the way through the three-year Treasuries were all between 1.5% and 1.6%. Highly-rated corporate bonds earn a little bit better, but not much. Just to give you some perspective, last calendar year, our investments earned on average 1.76%. For the trailing 12 months that just ended, they earned 0.91% steep drop-off. And for the first quarter, this first fiscal quarter, our investments earned 0.35%, as I mentioned before. That's how fast rates have dropped off. A one-year treasury right now will yield less than a tenth of a percent. Net investment income, will remain very low until we see a recovery in short-term interest rates. So moving on to the tax rate, our effective tax rate for the first quarter was 30%, 30.0%. This was higher than normal as we wrote down some deferred tax assets in Singapore that we feel are not going to be realized. Assuming nothing unusual comes up during the year, the rate going forward, the effective tax rate going forward through the fiscal year should be closer to 27% for each quarter. Of course, the change in the federal corporate tax rates could change all of that, and there's been a lot of talk about potentially bumping up the federal tax rate. Moving to depreciation, depreciation will climb through the remaining quarters of the year as we bring online our expansion. For the full fiscal year, 2022 year, depreciation will be similar to last year's. Last year's depreciation was roughly $1.2 million. But it will start low and grow throughout the year, throughout the quarters of the year. Next year's depreciation, all of our expansion assets are all online and up and running. The depreciation will increase somewhat significantly as we have a full year of depreciation on all of those expansion assets. That's it for me, Brian, unless there's anything else. Okay.
spk02: No, that's great. Okay, thanks, Matt. All right, good deal. Let's go on to slide seven so we can keep moving here. So this is just a slide that we've included before this information. Actually, one of our shareholders said they missed it last quarter, so we decided we'll just put it back in. So I think you know the story, zero long-term debt. Matt already covered $117 million in cash, and then we have the dividend history here. $546 million paid since fiscal 2005, and we keep going. So if you have any questions about the dividend history, let us know. But why don't we just keep moving so we don't get too bogged down. We've got a lot to cover. Slide 8, this is a slide that's become kind of, I guess, standard for our presentations, the top five customers in alphabetical order. And we have nice pictures associated with most of the customers. First is AE Aerospace. That relates to the picture on the top right, the NASA Oriel program. Those are ablated materials we supply to that program. Next one is GKN Aerospace. Look at the top left, the Boeing 787. GKN is a contractor, and we supply it to many programs through GKN, but we chose the Boeing 787 for this presentation. Materials for structural components is what PARCS supplies. Kratos, they're a pretty common top five customer these days, and we usually provide a picture of one of their drones, the BQM SSAT. And I think we've mentioned this before, but we believe we're the main supplier of composite materials for their drone programs, for the structures for their own programs. And the bottom right, actually something a little surprising, this is for Nordam. These are radome materials for the weather master radome that are used for the 737 and 737 MAX. For NORDEM, we also supplied NORDEM through multiple programs. We thought we'd select the 737 MAX just for a change of pace. Got a little bit of a bowling orientation here, don't we? Middle River, MemRAS, we got plenty of coverage about them, so we don't need a picture from them for slide eight. Let's go on to slide nine. Kind of interesting, I think, that it looks like these are the pie charts, which I think are interesting, parts estimated revenues by aerospace market segment. But what's interesting is Q1 of fiscal 22 is starting to look like fiscal 2020. Obviously, fiscal 21 was a big difference with commercial being way down, military being up. But now it looks like we're kind of returning more to the pattern of fiscal 2020. Okay, let's move on. Slide 10, Park loves niche military aerospace programs. This is another standard slide that we have and we're using in the last few presentations. This is a project, as well as the top five for Don and Elena. They always select the interesting programs, too. talk to you about. These programs aren't necessarily big or small. They're just programs we think would be of interest. Let's just go through it. Raytheon MK-6 guided missile, that's a newer program for us. We supply ablated materials into that program. Lockheed C-5 Galaxy, pretty aircraft that's been around for quite a while, and we supply materials for various structural components. The Boeing Apache helicopter and materials for secondary and primary structures. The Textron System Shadow, which is a drone, obviously, materials for aircraft structures. It's been on this program for a while with multiple variants. And here's something interesting, Airbus C295 materials for interiors. We consider radomes, rocket nozzles, and drones to be kind of the niche areas for part in the military part of our business. Why don't we keep going, slide 11. This is just a teaser for you. Like I said, we're going to try to make this a little interesting. The launch is planned for the James Webb Space Telescope November 2021 and going where no man or woman has gone before. That's, I think, from Star Trek. This is a program that we feel really, really pleased and privileged to be on. We'll probably do more of a detailed discussion of the James Webb maybe when we announce Q2 since the launch is going to be in November 2021, but we thought we'd provide us just a little bit of a teaser for you So why don't we just keep going. I'd like to cover, like I said, slide 12, the update on our major expansion of our Newton, Kansas facility. A total budget, 19 million, spending to date, 16.5 million. Spending to go, we can do the math, 2.5 million. The expansion is basically complete. Some bricks and brabs still coming in, but the expansion is basically complete. Manufacturing trials expected to begin later on this month. Qualification runs expected to begin in September of this year. Just a little caveat there. We've discussed this over the last couple quarters, but we continue to be challenged with our supply chain raw materials. We continue to fight the battle every day, so we're going to have to see if we feel we have enough raw materials to actually do the qualifications starting and trials starting in these dates, because what we don't want to do is start qualifications and trials and then not be able to produce for production. That would not be a good choice. So we'll have to see what happens. At this point, though, this is our plan. And the last item I think important, we pushed forward with our major expansion when many others were slashing their capital spending. Good thing we did. Good thing we did because we'd be in a world of hurt right now if we didn't do this. Remember, we'll cover this later. This was originally supposed to be a redundant facility for the GE programs. But if we hadn't done this expansion, especially based upon the indications that Airbus is giving about the A320neo program, we'd be in a world of hurt right now because you don't do an expansion and get a qualified in six months. That doesn't happen. So it's very good we did this and very good we stuck to our guns. It didn't falter and flinch and went ahead and completed this expansion. Some pictures, and the bottom right picture is Donna. with the door open, kind of welcoming us in, saying, come on in. The expansion is complete. That's their front entrance. So good. Let's go on to slide 13. Slide 13 is really just going to review slides, so we'll cover it quickly. Like I said, we're including these slides for perspective. Maybe some of you don't remember everything we covered in Q4. This relates to single-aisle in particular. Higher jet fuel prices and environmental concerns provide extra motivation for airlines to move quickly to replace less fuel-efficient legacy single-aisle aircraft, more fuel-efficient modern single-aisle aircraft, such as the A320neo family. Look at those crude prices. They go up and up and up. I know they're down a little bit in the last day or two, but they go up and up and up, and that means motivation, motivation, motivation. for these airlines to replace their less fuel-efficient airplanes with more fuel-efficient airplanes. Remember, at the beginning of the pandemic, we said, oh, boy, you know, these crude prices are so low, there's not much motivation. Motivation is very big right now. China doing quite well with domestic aviation. They had a little bit of a setback with the COVID outbreak and lockdown in Guangdong province, but they're still at the level they were at pre-COVID. They were actually even more than that, and now they're kind of back to that level, so still very positive. for single aisle. Domestic translates to single aisle. International translates to wide body. U.S. domestic aviation recovered to approximately 84% of pre-COVID levels. That's based on a report I read recently. Full recovery expected 2022. I haven't heard that some airlines are saying they expect full recovery by the end of this year. Very positive for single aisle sales. And although it is a way to go, European domestic aviation is starting to recover. That's also a positive sign for single-aisle sales. You probably read this. United just did a huge single-aisle order. That's all good news and good indications. That was not only for the A320neo. That was for the MAX as well. Single-aisle aircraft, place to be in commercial aviation, at least for now. That's our opinion. Let's go on to slide 14. We're continuing the same thing. Now, these are two new items, though. So let's look at these. U.S. and European Union resolve their 17-year-long trade dispute involving subsidies of Boeing and Airbus. Okay. We all read about that, I think. But this is kind of interesting. I feel a little strange. According to the U.S. trade representative, quote, we are finally coming together against a common threat. And she mentioned China. I thought that was an interesting comment. from her, and then the next one, Boeing recently stated it's in no hurry to develop a new single aisle aircraft dubbed the 5X to compete against the Airbus A321XLR. Both those were a little surprising to me, so we'll circle back on both those points throughout the presentation, if that's okay. Flight 15, we go through this live pretty much every quarter. Remember, we have, this is GE Aviation's Edison Program. Remember, we have the firm pricing LTA. It's a requirements contract from 2019 to 2021 with Middle River Air Structure Systems. That's MRAS, a sub of GST Engineering and Aerospace. Let me just remind you that MRAS was a sub of GA Aviation, and that's why all the programs run through MRAS are GA Aviation programs. A couple years ago, GA Aviation sold MRAS to ST Engineering Aerospace, which is a major aerospace company based in Singapore. Redundant Factory Construction really should say basically complete, not near in completion, so that's on us. We missed that one. But remember, that was our deal. Once we entered into that LTA, we agreed, okay, we're going to go ahead and build a redundant factory, and we're people of our word, so we went and did that. But as I just said, it's pretty darn good we did it because we'd be in a world of hurt right now if we hadn't done that, not for redundancy, but for capacity. We're sole source for composite materials, for engine and cells, and thrust reverses from multiple MRES programs. The first, let's see, one, two, three, those are five are A320 NEO family. Then there's a Boeing 747, the COMAC 919, the COMAC ARJ21, which is a regional jet, and a Bombardier Global 7500. You can see some of these programs we have are sole source for lightning strike material as well, top right. Part composite materials are also sole source on primary structure components for a Passport 20 engine. for the global 7500, but that's not part of the MRS LTA. The picture of the legendary Boeing 747, edgy nacelles. I love this picture because it gives you perspectives as to how huge these things are. And everything you see here is made with park materials in terms of the nacelles. Also, there's stuff inside, thrust reversers and their fixed structure, which you can't see. Let's go on to slide 16. Let's do a little bit of an update on the GE Aviation Program. Some of this is just review. Some of it's new. Let's start with the A320 NEO family of aircraft. That's the big kahuna for PARC anyway. So the first couple of items we covered during our last Q4 call, currently at a rate of 40, going to 43 by Q3 and 45 by the end of the year. And that was confirmed by the Airbus CEO during the an investor call on April 29. He also mentioned a steep ramp in 22 and 23 for the single-aisle airplanes, meaning the A-20 family. Then this is new, May 27, 2001, news release from Airbus. This is just quoting from a news release. So this is an easy one, just a direct quote. A-20 family, colon, Airbus confirms an average A-20 family production of 45 aircraft, per month by Q4 2021. Okay, that's consistent with the prior items. And calls on suppliers, that means us to prepare for the future by securing a firm rate of 64 per month, going from 64 per month by Q2 of 2023 in anticipation of continuing recovery. Continued recovery, Airbus is also asking suppliers, meaning us, to enable a scenario rate of 70. 70 by Q1 2024, longer-term Airbus is investigating opportunities for rates as high as 75 by 2025. Let me just explain what 75 means. That 75 would represent 21% higher than the peak of our long-term forecast that we're using. That's very significant if it pans out both in units and in dollars. And let me go to the next item because it kind of is important that you understand how we get to that 21% number. Next item on slide 17, continuing as of the end of May 2021, CFM, meaning the LEAP-1A engine, at 60%, it's actually I think about 60.4% share, of firm orders for the A320neo family of aircraft. The source of that is Aeroengine News. So A320neo, two engines are on the A320neo, the LEAP-1A and a Pratt engine. This is saying that in terms of firm orders, this is not forecasting. This is not speculation. This is not some smart guy who thinks, you know, he knows what's going to happen. This is 60% of firm orders. So when we do the math, we use 60%. Now, that may not pan out, but that's what we use just once you understand that. So we say that 75 in the prior page translates to a 21% increase over the top of our forecast where it peaks. That's based upon assuming a 60% share increase. for the LEAP-1A engine. Okay, let's keep going on slide 17. Another little interesting thing. On May 21, 2021, CFM and IndyGo, large airline announced that IndyGo selected the LEAP-1A to provide the power to an additional 310, wow, 310 HF20neo family of aircraft representing CFM's largest order ever. a number of units. Now, what's interesting here also, a little side note, is India's had some trouble with COVID, as you probably know, recently. So it's been a setback for its commercial domestic aviation industry. But, you know, these people are smart. They're thinking ahead. So they're going ahead and ordering these airplanes with these engines, which obviously is good for park. And last time at 17, Airbus recently announced it is resuming work on a new assembly line in Toulouse. For A321neo aircraft, Airbus announced this new assembly line is scheduled to be operational by the end of 2022. Why is that significant? So some people look back at the last item on 16 and say, oh, yeah, Airbus, they're all talk. You know, they don't really mean it. But maybe this is Airbus saying they're not all talk and maybe they're putting their money where their mouth is. I tend to listen to Airbus. You know, I think they're smart people that we're talking about. Just an example, last year they were saying we're not going to go below 40, and lots of these smart analysts and commentators, oh, it's not going to happen, they're going to go below 40. So we didn't know what was going to happen. We certainly paid attention to Airbus when they said we're not going to go below 40, and they never went below 40. So we'll see what happens, never know, but I just wanted you to have that perspective. There's a nice picture of the A321 NEO with the LEAP 1A engine, slide 17. Let's go to slide 18. Let's talk about this XLR, 321XLR. So some of this we covered. Some of it is new. First test aircraft nearing final assembly. First flight expected next year. Certification entering the service, that's 2023. That's like, you know, tomorrow in the commercial aviation timeframe. You know, like talk about dog years. Two years is nothing. And they've been saying this. They're not backing down. So that's pretty important. Is this going to be a game changer? A lot of people say, yeah, it might be, because the concept is that this airplane can replace Y-bodies on many missions with much lower costs. So here's a key question. Is this single aisle, 5,000-plus statue mile range, 225-plus seating capacity market, being seated to the Airbus A321XLR by Boeing, you know, said, they're not in any hurry to come up with a competitor. I know what that means. I'm just telling you what Boeing has said. But either way, this is, I think, will be a pretty, my feeling is this could be a big airplane for Airbus and for Park, and we'll see what Boeing does. And we'll just have to see. I'm just telling you what Boeing has said. I don't have any inside track in a Boeing. I'm not an inside guy at Boeing. I'm just telling you what they said. So I'm a little surprised about that, like I commented previously. But nevertheless, that's what they've said. Let's go on to slide 19, continuing with the updated GE Aviation Jet Engine programs. The 919, this is a COMAC airplane that's designed to compete against the MAX and the A320. It's a single aisle. COMAC continues to maintain the intended certified and begin deliveries of this aircraft before the end of this year. So we'll see what happens. I think originally it will be for the Chinese market, but they intend, COMAC, Chinese, they want to be role players in commercial aviation. So as compared to the regional jet, which is really kind of a China airplane, they want this to be an airplane not just for China, the 919. They want this to be an airplane for the world. meaning they'll have to get us served by the FAA and EASA, that kind of thing. But I think they'll begin with a Chinese certification delivery into China. This airplane could be a pretty big opportunity for Park once it gets going. But here's a couple of questions. How will the recent peace treaty between Boeing and Airbus intend to deal with their, quote, common thread, unquote, to affect COMAC and the 919 program? I don't know. I mean, it's a good question. I sense it will not affect the domestic sales, Chinese domestic sales, but we'll see. We'll see what's going to happen there. It's kind of, I think, strange development, and I think it was strange that the U.S. Trade Representative was so blunt about, you know, the intentions of this peace treaty. Then the other thing is COMAC recently reiterated plans to complete the development of domestic engine alternative to LEAP-1C engine for the C-919 by 2025. So what I would say about this is that, in my opinion, it's much more difficult to certify an engine than an airplane. Certifying an engine is a big, big deal. Engines are very complex and a lot going on with engines. So we'll see if that happens. Maybe it will, maybe it won't. Slide 20, still going with the updates on the Global 7500 and the IRJ21. We've been saying these programs are in a ramp mode for the last couple of quarters. That's based on the forecast we've been given. But now the nice thing is, is we're seeing it in the order patterns with the Pest War 20 for the Global 7500, even beginning with the ARJ21. We're actually starting to see it in the order patterns, nice pictures of these airplanes. So that's good news. So let's go on to slide 21. And last but definitely not least, the Boeing 747-8. Boeing announced that it will terminate production of the Queen of the Skies, in 2022, along with the Queen. To me, this is a very, very special airplane. And we've got pictures of the legendary Boeing 747 Queen disguised in real life. Real life means that these pictures are all taken at Anchorage Airport and all taken by me from the cockpit of an airplane, of my airplane. The top picture is I was taxiing behind these airplanes. By the way, you don't taxi too closely behind a 747. Just in case you ever had that experience or had that option, don't do that. And the other one is just the middle picture is the airplane landing right in front of me as I was holding short of the runway. Slide 22, this is all review. And I wanted to include this slide because it kind of gives, I like the pictures Donna picked out for this slide, but it gives some perspective on just how bad things were with commercial aerospace last year. You know, I'm not going to go through each item, But, you know, it's just that everything we heard about commercial airspace was negative. But I'll cover the last item. Aviation analysts and commentators predicted full recovery would not come for many years or may never come, end-of-day scenario. We'll use that term again in the presentation. Let's go on to 23, continued. This is all review, but at PARC we didn't completely buy the doom and gloom news. We didn't buy the end-of-days were at hand. We made our deal with MRS to maintain minimum baseline critical mass production. We discussed this many times. We won't go into the details, but I'll just say critically important to park at MRS. If this didn't happen, we would be in a world of hurt. MRS would be in a world of hurt. And guess who else would be in a world of hurt? MRS's customers. Because if we allowed our production to go to levels where we couldn't recover, then there would be big problems, not just for us but for everyone. MRAS and the customers, and I don't know what we would do about that. And then the last item, even though layoffs are widespread and pervasive, we didn't lay anybody off. Very happy about that decision. And it also was very important to park. So we laid off people. We'd be in a real world of hurt right now. You'll see later on. We're having trouble hiring people, but if we laid off people, we'd be in a real world of hurt right now. So good thing we didn't do that. Slide 24. Continuing with this year in review, we spoke in a Lent during all four calls in 2021 about the significant divergence from and mismatch between this minimum baseline critical mass and the then current end market requirements for these GE programs. We talked inventory to stocking. We said, can't the stock destock below zero? We don't use negative numbers for inventory. I don't think GAAP allows that. And divergence was mathematical, unsustainable, just pure math. And unless there was some dramatic step down, day of reckoning was going to come. And, well, it came. You know, destocking is the end, at least for the programs we're on. Let's go to slide 25 here. I'm trying to hustle through. So the first item, we covered this before. The second item, interesting perspective, I think. We alluded to this right at the beginning. Q3 of last year, G program sales, 1.8 million. Q1 of this year, 7 million. That's about a four times increase in two quarters. That's a big deal. That's not just talking about forecasting. This actually happened, folks. You know, so we talked about these programs ramping up. Well, that did happen. That's not just forecasting or somebody's opinion. This is just facts. Let's go on to slide 26. So slide 26 says, We're continuing the same theme. So we talked about this. We received an updated long-term forecast from MRAS. And if you look at the long-term forecast, basically a very similar total number through the 2029 calendar year as the pre-COVID forecast. Now, we have an opinion about this, though. It may not fully capture the upside. Why? The steep ramp-up of the H-320 new aircraft family. production discussed by Airbus in their May 27 news release we referred to in slide 16, and then significant potential XLR sales opportunities, especially in light of Boeing's recent statement about not being in a hurry to develop an aircraft to compete against the XLR that was mentioned on slide 14. These two may be together. Maybe this significant indication by Airbus of significant upside may be related to the XLR and their optimism about the XLR. I think in prior quarters, I mentioned that it didn't seem like our long-term forecast that we received from MRAS is fully capturing the XLR opportunity. So the point is that there is a significant upside. I already mentioned that when you talk about 75, that represents 75 per month. That represents a 21% increase over the peak of the forecast we've received from MRAS for the Now, an important question, though, to come back to is, how will the commercial aerospace manufacturer supply chain respond to the steep ramp? This is more of a short-term consideration, meaning eventually it'll catch up, but nevertheless, a very important consideration. There's a lot of talk about, you know, the supply chain struggling, and we see it as well. Slide 27, how is FARC responding to the GE aviation program's ramp-up? All about our people. current people count 105, like what the heck is going on here? People still getting paid not to work. So how do we do that? How do we do that with GE programs going up by four times since Q3? And by the way, Q3, if you look at the presentation for Q3, there was 107 at that time, down to 105 now for Q3. And we said, we announced Q3, we planned to add 15, 20 people. What happened? So We didn't get done. Very difficult to hire people right now. Again, it's very important we didn't lay anybody off. And, you know, we've been on time and relatively low waste with an incredibly steep ramp that we had to handle with less people, not more people, less people. So parts people are stepping up, getting the job done. That's what parts people do. Parts people aren't big in excuses and whining, just get the job done. Thank goodness for our Our customer flexibility program, we talk about this every quarter, can't emphasize enough how important this is. Ramping down, ramping up gives us this flexibility that is very significant. It's just a godsend. Without this program, I think it would be very difficult for us to get the job done. It's a big deal. Flight 28, let's continue here. Thank goodness we did not lay anybody off in case we already covered this. Even in the darkest days of commercial aircraft, aerospace industries, Armageddon, We'd be in deep you-know-what right now if we laid people off. We only have 105 if we laid people off. I think we'd be at a point where we couldn't even get it done. Thank goodness for Park's great people. Without them, we'd not be able to get a job done. Can't say that enough. Park is fortunate and blessed to have the great people it has. Can't say that enough. And just so you know, every Park person, including Matt and Brian, receive a $250 bonus for their dedication and outstanding work during the fiscal first quarter. So let's go on to slide 29, a little bit busier here. GA Aviation Program Sales History and Forecast Estimates. The top of the page is the history of Q1, $7 million. I think we already alluded to that. And during our Q4 call, we predicted $6.5 to $7 million, so we came in just at the top of that range of our prediction. Now let's look at the forecast. Q2, for GE programs, we're forecasting 6 to 6.6 and a quarter million. The previous forecast we gave you during Q4 was 6.5 to 7, so we brought those numbers down. We'll talk about that in a second. Q3 and Q4, those are new. We hadn't given you a forecast for Q3 and Q4 previously. The Q, sorry, the fiscal 22 total, that's unchanged, 26 to 28 million. That's what it was before. So short-term, let's talk about what happened in Q2 while bringing numbers down. Short-term, it's always difficult to nail because of inventory practices, which can move things from quarter to quarter. And also I mentioned before that Emirates uses a company to manage inventory, so there's multiple layers. You have Emirates, there's this company, and it's difficult sometimes for us to see through. We get inconsistent information, not that anybody's giving us information that they don't believe is correct or misleading us, leading us it's just that it's complicated so we do the best we can we work at it real hard but all we can do is kind of guess a little bit ultimately what matters. The only thing that matters long-term is nothing to do with this. It's how many A320 Neos that Airbus produces and sells. How many Comac 919s that Comac produces and sells. How many Global 7500s that Bombardier produces and sells. That's what matters long-term. Now, there'll be movements for quarter to quarter, but long-term, that's what matters. And we pay a lot of attention to the inputs we get from the OEMs, which are not, we get it directly, just public, you know, public statements. but, um, As I said, we're not changing the forecast for the year. And just so you know, we believe there are some upside potentials based on some of the indications that we're getting from or hearing from some of the OEMs. But last item, supply chain risks of forecast. Where do you mention that? I'll mention it again. I probably mention it every quarter now. It's something that's a battle, daily battle. We have to manage. So far, okay. But, you know, razor kind of thin, okay. Let's go to slide 30. This is now... Parks Financial Performance History and Forecast Estimates, a little more involved here. So the top of the page is history, just for perspective. You already know the history, so we won't spend a lot of time on that. Certain factors which affected Q4 and Q1, we already talked about that. That's the 3.5 million essential components for the missile programs in Q4. one million of sales of missile program materials in Q1. What we haven't spoken about is in Q2, approximately a million of the central component sales. Those are sales that are in the very low margins. So I just wanted you to be aware of that for Q2. Now, for Q2, what we did, we gave you a forecast for Q2 when we announced Q4, and we brought Q2 down. The top line was 14 to 15. Now it's 13 to quarter to 14 to quarter sales. The EBITDA forecast previously was 3.3 to 4, now 3 to 3.7. Basically what we did, we brought Q2 down, the company Q2 down, the revenues or sales by the reduction in the GE forecast for Q2. We just kind of passed that reduction through. So not a lot of brilliant math going on there, pretty straightforward. Let's see. We have not changed the forecast for the fiscal year, though, at this point. There's no reason to do that. Let's see. What else do we want to talk about here? So what are the risks? We talked about this a little bit, but we probably want to talk about it again. International shipments and transport, that's a risk for Q2. These are shipments, park shipments to customers that are overseas. International shipments have become more and more challenging, so we might be ready to ship something, but if the The shipping company is not ready to do it. It's not a sale until we ship. We have costs that are elevating or escalating, I should say. Some costs are covered. We pass them through. Some costs are locked in. We have long-term agreements with suppliers, and some may not be. There's a supply chain risk. We talk about that with respect to GE and also with respect to PARC. And then there's cost. We talked about this earlier. We're hiring people. We have T&E that will probably go up. So we just want you to keep those things in mind. Q1 was a little unusual in the respect that we weren't able to hire people and the T&E was still pretty low because we weren't able to travel very much to see customers. We're also concerned about risks to the economy, inflation, concerns about the economy and our country. We need to keep our heads about us, you know. As we say, we didn't buy the end-of-day scenario last year with the pandemic, but we don't necessarily buy the happy days are here again scenario either. Was it, I'll agree, Spann, irrational exuberance or something like that? I think that's what he said. We're concerned about that, and we're just really paying attention carefully and watching carefully. And the most important thing for Park, we didn't lose our head last year. Let's not lose our head this year. Let's not get caught up in the irrational exuberance stuff, because we think there are some risks and concerns about, the economy, and maybe our country generally. A long-term forecast, a few of you have asked us when are we going to issue a long-term forecast. Obviously not now. Maybe Q2, but probably I'd say more likely Q3. And here's the thing, you know, as we just went through, there's still a lot of risk, a lot of uncertainties. We don't want to give you a forecast that just, you know, puts numbers out there. Obviously no forecast is a guarantee, but we want to have some reasonable confidence that, yeah, these numbers look right. They're reasonable numbers. Until we get there, it doesn't make sense just to put numbers out for you. It's kind of doing a disservice to you, and it's insulting to you to give you numbers that we don't really believe in. Not that they're guaranteed, but numbers that we feel are reasonable. So we'll see. But that's our feeling about the long-term forecast. Slide 31, update on acquisitions, other strategic investment activities. Sorry, I know it's going really long, but we'll try to hustle through here. Banker-led auctions. We're still trying. We did one. We participated in one recently. We got to the second round, and we backed out. It's the reason it's often not what we want. These are aerospace companies, but that's not enough. It has to be something that makes more sense for PARC. And also, we're competing against this cheap and easy money, which makes it even more difficult. We're not going to overpay just because there's a lot of cheap and easy money out there. What do they say? We've got to give our heads about us and not get caught up in the mob mentality or hysteria. So what we're doing is strategic targeting of aerospace industry market segments and product lines. We think this makes much more sense, and we've done a lot of work on it. We've identified segments. We've reached out to probably about 10 different companies. This is more difficult. Why? Because when we go into an auction, guess what? The company's for sale. We start contacting companies in a target market normally not for sale, so we have to open the discussion up and take some time and be patient. JV is still working on them, and potential strategic investments in key aerospace and aircraft programs. That's something that we are pursuing, a number of different programs. We've reached out to OEMs, and we'll see what happens, but we think that's an interesting opportunity for PARCC. And in some cases, I think they've even reached out to us. Why don't we keep moving here? We're leaving at strange times. These are our final slides, so again, I apologize for the very long time. time on the presentation. Strange days have found us. I think that's from the doors. People getting paid not to work, free money being forced, fed into the system. In the old days, people believed work was something honored and valued. It gave a person self-respect, self-reliance, dignity. But now, maybe not. Free money used to be that you worked hard, you sacrificed, you were frugal with your money. And one day, this is not just a person, a company, You know, you'd be able to use that hard-earned money because it had some real value. It was something important for a company. But now it's just, you know, use the cheap and easy money. If it doesn't work out, it doesn't really matter because it never was really your money anyway. So it's kind of sad, actually, and, you know, why bother to work hard and sacrifice because, you know, why do that? Why don't it just happen to the cheap and easy money? It's kind of tragic in our opinion. But, you know, so, sorry, continuing, the world seems upside down and backwards to us. What was supposed to matter doesn't. What was not supposed to matter does. But at the end of the day, you know, Park, we're not philosophers and politicians. We work for a living. We keep pressing forward. We do not stop. We do not back down. We do not relent. We just don't do those things. It is not in our nature. As I said, at Park, we work for a living, not philosophers or politicians or And Park, we make money for owners. Those are two old-fashioned concepts that we still believe in. Let's go on to slide 33. Our family, our Park family sticks together. We take care of each other. We honor the one we lost who we will not forget ever. Park is a strange and unusual company filled with wonderful and special people. We are very fortunate when it comes to our people. At PARC, we're not like the others. We play for keys. We're not fooling around. We're looking to make an impact. We always end our presentations with a picture of one of our crews or teams. This is our Q1 production lab team. The top row, Bailey, April, she's actually QE now. Aaron, Leo, who's known Leo for a while, great guy. He's a second shift supervisor. Hallie, Patricia. Our front row, Nancy, she's first shift supervisor. Taylor, Scott didn't make the photo op. And if you know anything about our business, you're probably saying, well, where is everybody? No, sorry, this is it. This is our lab crew, production lab crew for our Q1. This is all we had. And, you know, we've hired some people since Q1. So you'd say, my God, how did we get stuff done? Production lab work for our kind of business is quite complicated, quite involved. And it's part of the production process, just like manufacturing is critical. We can't ship product to customers until they've been tested. And sometimes the test is very complicated, involving multiple steps, involving multiple days for sure. But these folks all have multiple job category approvals under the Customer Flex program, and they all stepped up. As I said, if it's not tested, it's not shipped, and we shipped. We shipped everything. A great job by these great dedicated park people. Thank you very much to these people. And that concludes our presentation. Thank you, and operator, hopefully some people, if somebody's still listening, who's ready to take questions now.
spk01: As a reminder, to ask a question, please press star then 1. If your question has been answered and you'd like to remove yourself from the queue, press the pound key. Again, that's star 1 to ask a question. We have a question from Brad Hathaway with Fairview. Your line is open.
spk03: Hi. Congrats on another very good quarter. I appreciate that you're not giving specific long-term guidance, but I was curious in your commentary on the kind of 21% increase in Airbus versus your kind of prior long-term forecast. And I'm just curious kind of if you looked I guess kind of business line by business line, I mean, how do you think, you know, just directionally most of what you're seeing compares to kind of what you previously thought in that forecast?
spk02: Do you mean like by segment brand? Is that what you're referring to?
spk03: Yeah, maybe, I mean, commercial, military, business, and however you want to think about it.
spk02: Got it. So commercial is very dependent on commercial and actually business aircrafts. very dependent on these GE Aviation programs. There are definitely other programs we're on for commercial and business, but those are the big dogs. The thing that probably drives commercial at this point any more than anything else is the A320neo program, although the other programs are significant and are moving up. It's really hard for us to figure out what to make of these Airbus statements in the news release. There are some skeptics that say, well, you know, it doesn't – What does Airports have to lose? They just want to get the supply chain ramped up and it doesn't materialize. Well, that's the problem with supply chain. I'm not in that camp exactly. I think that we should listen to what they're saying and we'll see what happens. But that difference is a multi-million dollar difference between how our A320 tops out in the forecast we have from MRAS. Our forecast from MRAS is based on units. I think I explained that before. So we have the units. We know per year. We know what the content is per unit. So it's easy to do the math and figure out what the revenues are. It's many millions of dollars difference. So I would just say that, just to give you a little perspective. The rest, we're just going to really want to wait and see. I think it's kind of a weird situation because some people, happy days are here again, and and some people still got a little doom and gloom. And I think we're kind of in the middle, and we're not sure what to believe and where things are going. We see some real risks, but then we see the upside as well. But, you know, Brad, it's just hard at this point for us to make a quantitative judgment. That could translate into numbers in terms of top line. And like I said, we think we'd be doing you a disservice by just kind of throwing stuff out there. Military, that's interesting. It's just something that we keep working on, working on, working on. Every quarter we give you some new, you know, pictures of new military programs. Maybe not new that quarter, but, you know, new to the presentation. And we feel real encouraged about military. I think it's a real good opportunity for us, especially in the niche areas. where a lot of others just don't want to bother. It's too much trouble. It's not worth it. Those are where the good margins are for us anyway. So we're encouraged about military. That third segment, business aircraft, is largely going to be driven by that Bombardier Global 7500, but there are other programs, other business aircraft programs that we're on that don't relate to GA aviation. But that's, you know, let's call it the big dog in business aircraft if you want to separate into those three segments. Got it. Great.
spk03: That's helpful. So, okay, so I guess it's kind of waiting to see whether these kind of 75 in 2025 from Airbus is a real number. Okay. Sorry, go ahead. Sorry?
spk02: I thought you were going to say something. Oh, yeah, I think we'll, right. We'll wait just to, you know, follow up what you're saying. We'll wait to see what other comments come out from Airbus, and we'll just be watching what happens in the market. You know, when you've got Indigo ordering loads of airplanes with these LEAP engines, that's a plus, right? You know, so we've got to watch and pay attention to pretty much everything.
spk03: And what do you think about the long-term potential for the COMAC 919s? I mean, you know, how big a program could that potentially be for you?
spk02: My opinion is it won't be the size of 8 for 20, but it could be significant. It has significant potential. So we have a lot of content on those engines, and it has significant potential. Let's see what happens. You know, we hope that they are successful in getting airplanes certified and productionally for China. We hope they're successful in certifying it. In the rest of the world, we're not sure what to make of the P3 between Boeing and Airbus, and how that affects Comax. So kind of a lot of things going on that are hard to judge. But in terms of even the forecast we have from MRAS, significant opportunity with a 919 to park.
spk03: Great. And then finally, I guess on the M&A front, you know, so it sounds like you participated in a deal, I mean, I was curious about the strategic investment in the aerospace and aircraft program. Can you give a little more color on what that actually means?
spk02: What we're doing, in other words, Brad? What we're trying to do?
spk03: Yeah, what potential things you might do when you talk about the strategic investment as opposed to, like, doing venture.
spk02: Oh, okay. So just for perspective, we did actually participate in the auction maybe, I think, about a month or two ago. We got into, I guess, the second round. But then we decided to back out because... We had a kind of a, I don't know, gut check or whatever you call it, come to Jesus internal meeting, and we determined, you know, this is really a stretch. It's aerospace, yes, but it's so far removed from anything PARC does. The synergy was just not there. And we say, okay, it's aerospace, but other than that, I mean, there's no way in which one-on-one equals two that we could, sorry, equals more than two that we could figure out. What we have done, we decided to, I think about six months ago, we decided to target a specific aspect of aerospace materials that's closely related to composite materials. These are other materials that are used to produce composite structures for aircraft. We thought it made a lot of sense. It has a lot of more synergy technically with what we're doing now. Also, polymer chemistry-based, I don't want to go too far because, you know, it's still something we want to keep a little confidential. So we did. It was, you know, the kind of typical thing. We did the survey. We came up with the usual suspects of 40, 50 companies, and we started narrowing it down. I think we've reached out to about maybe eight or ten of them. And not surprisingly, well, some said, okay, well, let's talk and let's talk some more. And some, well, we're not for sale. Maybe they thought about it and came back to us. There are two categories. One are independent companies. That's a little different, owned by maybe an individual company. And the other would be a sub or division of a very large company, very kind of different approaches to M&A. If it's a very large company, you're going to contact a business development guy. Okay, we'll get back to you. Let's look into it. With an individual owner, you've got to be much more delicate and careful and respectful, I would say, of the individual and their personal investment in the company and that kind of thing. And we're doing both. So, it's harder because it's not like we contacted any of them. They say, oh, great, you called because you're just about to put it up for sale. That would have been unrealistic. So, it could take a little more work, but if we're successful, it'll be a lot better for Park, I believe, than just, you know, participating in something that's auctioned, which often is an aerospace, but other than that, doesn't really connect to Park's business very well.
spk04: Okay, great. Thank you very much. Appreciate all the color. Sure. Nice to talk to you.
spk01: Again, to ask a question, please press star then 1. Our next question comes from Christopher Hillary with Rubix. Your line is open.
spk05: Hi. It's good to speak to you all. Hi, Chris. It's great to see the strong profitability embedded in your outlook. I wanted to ask, as you look out maybe a little bit farther without giving guidance per se, are there aspects or are there ways in which the business has developed where you anticipate either greater efficiencies as you, for example, expand your capacity with the latest production technology, or are there areas where you see maybe the margins being a little bit more challenged because we've gone through this whole supply chain disruption, the need to maybe carry higher inventories? I'm curious if there's any and how you're thinking about your opportunity to capture margins in the medium term?
spk02: So efficiencies, I know with expansion, for instance, I don't know about that. I don't think we're expecting anything significant in terms of manufacturing efficiencies. I think we're already pretty efficient, actually. I know that's a little bit of a dangerous thing to say because, you know, you always want to look for opportunities to do better. But I think we have a pretty lean, pretty low-cost structure. I think it's an appropriate cost structure, but it's also a pretty low-cost structure for manufacturing. And costs, you know, that's a concern. We pass on and we get raw material increases. We often pass them on. In some cases, we have long-term agreements, which require the supplier not to give us increases. Some things we can pass on, some things we can't pass on, like supplies is an example where we just have to deal with it, labor costs, utilities. So we hear a lot of talk in the news about inflation, and we certainly see it. I mean, just the airline cost to travel, much more than it was six months ago. So some of these other costs are going up and to some extent they'll be contained and to some extent may not be, but it's something we have to watch for. In terms of maintaining more inventory, we'd like to maintain more inventory, but we're not able to because of these big components that I said where we're having some concerns about supply They have the same forecast we have, so if we say we want to order more, they're going to say, we're not going to give you more. We're not going to give you more than in your forecast. We'd like to be able to maintain a cushioned inventory, but it's pretty hairy, I guess I would say, and it's a battle every day to manage the inventories. If we could increase our inventory as we would, I don't believe that would increase our cost structure very much and affect our balance sheet, but I'm not sure how it would have I don't think it would increase our cost structure very much in itself just by increasing our inventories.
spk05: Okay. Then maybe one more. Given that you're a domestic manufacturer, particularly as it relates to your military business, does the desire to have more domestic production and onshoring come into play in any way with your existing portfolio of products or maybe how you're thinking about M&A opportunities?
spk02: Yeah, I'm not sure about the M&A part of it, but I believe the fact that we are one of two domestic manufacturers of composite materials for aerospace, it does help us in that regard. It gives us more opportunities to develop additional military business. So we'll have to see how that plays out a little bit. There's certainly a lot of talk about it, but to the extent that it's a factor at all, it would be a plus.
spk05: Great. Thank you for your time today. Sure, Chris. Thank you for your input.
spk01: There are no further questions. I'd like to turn the call back over to Brian Shore for any closing remarks.
spk02: Thank you, Aubrey, and thank you all for hanging in. This was probably the record in terms of long scroll we've ever done. As I said at the beginning, a little difficult because we felt we needed to include some of the slides from Q4 for perspective, and it made getting through the presentation difficult. It just took longer. But anyway, thanks again for listening. We really appreciate it. Call us anytime. You can reach out to Matt or me anytime you want. And otherwise, have a great summer, and we'll talk to you soon. Have a good day.
spk01: This does conclude the program. You may now disconnect.
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