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spk02: Good morning. My name is Paul, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp second quarter fiscal year 23 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 1 on your telephone keypad. If you would like to withdraw your question, please press star 2. At this time, I will turn today's call over to Mr. Brian Sharp. chairman and chief executive officer. Mr. Schor, you may begin your conference.
spk00: Thank you, operator. Welcome everybody to our second quarter conference call. This is Brian. With me as usual, Matt Farabarro, CFO. As you obviously noticed, we're trying something a little different this time. I think for as long as I can remember, like forever. We've done our investor calls at 11 o'clock in the morning New York time. We're trying to do something. We're trying, let's call it an experiment. after the closed call, which my understanding is that's actually more common. So we're trying to let us know what you think. We'll be noticing how many people actually are able to dial in, whether it's more or less. So let us know what you think. The earnings release was posted, I believe, around 4 or 5 this afternoon. There's a presentation which has been posted on our website. Also, in the earnings release, there's webcast instructions as to how you can follow along with the presentation while we're going through it, which is what we're going to do today, of course, as you know. Let's see. Just checking any other introductory little notes that I want to share with you. Oh, yeah, there's something I've got to tell you, which is that I've been under the weather a little bit. You may be able to hear it in my voice. I'm feeling just fine now, but the problem is I have a lingering cough, which is not a problem for me, but it could get a little annoying for you. So if I start to cough, please bear with me. Unfortunately, the thing that probably triggers cough the most is trying to talk for an hour at a time. I may hand it over to Matt if it's getting problematical. So I just wanted you to be aware of that. And I apologize in advance for any kind of annoying distractions. So this presentation, probably about typical for us, maybe takes about 45 minutes. Of course, after we're done with the presentation, Matt and I will be happy to answer your questions, and I think that covers it in terms of the introductory remarks, so why don't we get started. Here we go. Why don't we go to slide two, the looking forward disclaimer language. We don't go through this, as you know, but please call us if you have any questions about it. Slide three, our table of contents, the investor presentation, supplementary financial information, which is attached to Appendix 1. We're not going to go through that, but please call us if you have any questions about the supplementary financial information. Let's go to slide four. Probably slow down a little bit now, unfortunately. Slide four is the second quarter results with the history here as well. Sales for the second quarter, $13,875,000. Gross margin, $29.4 million. As I think you know, we really don't like it when that number is under 30, so we're not feeling so happy about the gross margin being under 30% I'm talking about. And EBITDA, $2,709,000. And the EBITDA, just the EBITDA margin percentage, 19.5. Don't like that under 20% very much either. So those percentages aren't really things we're very thrilled about. What do we say about Q2? during the Q1 investor call. So we had a, sorry, that's the first call, sales estimate of $13.5 to $14 million. So we came in kind of right in the middle of that range at $13 million at $75, but adjusted EBITDA estimate was $3 to $3.5 million, and we came in well under that number, $2.7 million. So let's talk about that. Why don't we go on to slide five? So let's start outstanding job by parks people to make the Q2 sales number considering significant challenges with supply chain disruptions, freight disruptions, severe staffing shortages. I know it's a broken record, but these things are not going away. A broken record in the sense that we've talked about these things a lot recently. These things are not going away. You'd have to kind of live and almost understand how difficult and almost oppressive these things are and how I want to give credit to our people for making the top sales number notwithstanding all these things. These three things together probably total about $750,000 of missed shipments when you combine all three of them. But nevertheless, we still made our top line number. So what happened to our EBITDA number? Considering we made the top line number, you would think we would make the EBITDA number. So let's talk about that. So, first of all, there were two customer items which had a total negative EBITDA impact of about a quarter million dollars, $250,000 of bankruptcy and another customer related item combined about $250,000 and a quarter. Let's go on to slide six. Significant inflation. Now, inflation is not a new story, of course, but some of it we didn't fully expect or fully bake into our numbers when we gave you our forecast. Material supply costs. Not new, just maybe a little bit more than we were expecting, freight in, freight out, you know, both ways, freight costs, people costs, absolutely. You name it, probably more expensive, you know, insurance, but we can give you a list of 20 things if you want. Now, why do we fully pass these increased costs on to our customers in Q2? It's a very good question. And because, unlike many others, we honor our commitments and our confirmed POs. At PARC, honor and integrity are not relative principles and not negotiable. the park honor and integrity what matter most remember i told you i think last quarter that one of our suppliers was lecturing us about honoring our po's with our customers and you know what were they saying well everybody else is doing it meaning not honoring po's is like well isn't that when we were kids you were told that doesn't count you know whatever that's not a good excuse for doing something that everybody else is doing it you know it's kind of sad that adults are thinking this way and the other thing is well we're going to business so We haven't gone out of business yet, and I suspect we're doing a lot better than most. So these are those things I think are good explanations or good excuses. The lag effect. So what that means is that we honor our confirmed POs. Now, when we're asked to re-quote, then we can take into account these extra costs and pass them on if we choose to. Then we can. But that might not be for three or four months down the road. The difference is with lots of other people, they're not waiting. They're just saying, fine, we're not going to hire them. the pricing that we have in the confirmed PO. Now, we don't do that, so we have to wait, and that's the lag effect, and that's why we're always a little bit behind in terms of passing things on. So let's go on to the next slide. Historically high inflation, yeah, we talked about that, getting that G back in the bottle, not looking too promising. Also, lower margin product mix. So you're going to ask, well, why didn't we anticipate that when you gave the forecast? Well, Planning is very, quote, unquote, interesting in this world of supply chain chaos. We do planning, but it's almost like whatever. It's a plan, but it never comes true because we're always juggling, always moving things around, moving something in, moving things out, because we're planning to produce this product this week that the raw material doesn't come in. So we've got to move something else in that we have raw materials for. So it's kind of like brute force, a little bit chaotic, maybe sometimes more chaotic. I'm not very good at it. But it's an enormous amount of effort. But the bottom line is we don't know what we're going to be producing in a quarter. When we give you a forecast, we think this is what we're going to be producing in shipping. We don't know that because there's so many uncertainties based upon especially supply chain disruptions, also workforce issues, freight in, I would say. But that's the reason why we couldn't really fully anticipate or didn't fully anticipate the product mix today. So it's somewhat of a lower margin product mix. There was some stuff we wanted to ship at the end of the quarter that was higher margin. We just didn't get there. The raw materials didn't come in on time, and it just wasn't possible to get it done. These supply chain disruptions, of course, have significant inefficiencies in our manufacturing operation. Most manufacturing people like to have a nice plan and everything's nice and simple and quiet and calm. We'll do this tomorrow, this next week. We'll do that, you know, three weeks from Tuesday. That's all nice and good. And then you can throw it all out, you know, at the window and start all over again. And when you're moving stuff around a lot, you know, all the efficiencies, manufacturing efficiencies with manufacturing people like out the window doesn't, you know, they're gone. That's what we're living with. So not a list of excuses at PARC. Excuses are not our thing. Bottom line is we do not make our EBITDA number plain and simple. No quarterly bonus for our people. Now, you could say that's kind of harsh. You know, a lot of people, not their fault, but it doesn't matter. We're all in this together, you know, and harsh it might be. But at PARC, you know, we earn what we get. We don't earn the money. We don't get the bonus, period, end of story, whether people like it or not. That's our kind of way of doing things at PARC. But we still thought you would want to know about some of the key things that we're living with and which affected our Q2. In other words, not accusers, but things you want to know. Let's go on to slide eight. Sorry. This is historical fiscal year results. We've shown this for the last few quarters. Things are very interesting. We highlight 20 and 22 because obviously you look at, you know, the 22 sales much lower, but the gross margin quite a bit higher. And even the EBITDA number, not that the percentage is the absolute number, a little higher, so I want to flag that for you. Let's go on to slide nine. This is something that we're covering now. Last three quarters, actually, one of our very good investors suggested it and always like to get suggestions from investors. You know, we don't do appeasement. We don't just do stuff to make people feel good, but somebody has a good idea, sure, why not? You know, we don't have this non-invented here kind of stuff attitude at PARC, that's for sure. Anyway, so no zero long-term debt, 102.5 million of cash in marketable securities at the end of the quarter. Our investment philosophy, highly secure liquid securities, treasuries, governments, high-grade commercial paper as an example. Current average maturity, 22 months. And our practice has been to hold our investments until maturity. That's kind of important. We'll get back to it in a second. We just marked the market reporting of our cash. We talked about it last time, and I did that because I knew this was coming, that as interest rates keep going up and up and up and up, and they're moving up, that's for sure. So it affects how we report our cash for gap purposes. Now, the amortized cost base of our cash is actually quite a bit higher. It's $107.2 million. And the theory is this, that if we hold the investments, the cash investment in these items we talked about, until they mature, which has been our practice, we're more likely to result with that higher number, approximately $107 million, rather than under $2.5 million. Just FYI. Let's go on to slide 10. So let's talk about where some money is being spent. Major expansion, we spent about $500,000 in Q2, about half a million dollars still to go. This total transition tax installment payment, we've talked about this over the years, a little bit complicated, nuanced, but still $12.6 million to go, $8.4 million paid to date. This has to do with repatriation. It's complicated. If you want a better explanation, call Matt. We don't want to take up your time to through this explanation again but a payment made in q2 1.7 million so you see that's starting to add up and then also i don't know if you noted in our balance sheet inventory bill the 3.2 million from compared to the beginning of the fiscal year uh so that was that's really intentional i just said we're having a you know really rough time with supply chain kind of pulling our hair out so we had the opportunity to build some inventory strategically we're doing that on a theory that we're hoping that it will kind of make things better in terms of supply chain give us more kind of predictability, more ability to plan, more ability to, you know, meet our commitments to our customers as well. And, of course, just one other thing that you probably know about every quarter, we have a approximately $2 million payment of our cash, our cash, regular cash dividend. So those are some of the items we're spending money on. And just FYI, if you're interested, cash dividend, yeah, where others cut or cancel dividends. We've maintained a regular dividend throughout the pandemic. We've paid 37 consecutive years of uninterrupted regular cash dividends. And then let's go on to slide 11. Here we go. $556 million. I always like that number in bold. $556 million. That's a heck of a lot of money for a little company like Parker. That's a goddamn lot of money, I must say. $27.15 per share since 2005. So remember, we got no long-term debt and still got quite a bit of cash. We have a share purchase authorization. We talked about this last time, announced on May 23, 1.5 million shares that we are authorized to buy. We haven't purchased any of our shares under this authorization, not yet. So you may not, you know, agree with this, but Our feeling is it's basically your job to buy our stock, not our job. Our job is to do everything possible and more to maximize the fundamental value of the company. That's how we look at it. I know a lot of people don't like that, disagree. But what now? So every now and then, every now and then, the market will make us an offer we can't refuse. That's the thing here. And will that happen? We'll see. We'll see. But the stock price is getting interesting, let me put it that way, based upon any kind of metric that I think reasonable people might use. Like I said, you can disagree, it's not our opinion, it's not our job to buy our stock, that's yours if you want to, or sell if you want to. It's our job to do everything within our power to maximize the fundamental value of the company. That's what we're doing 24-7, I think. So, last item, with interest rates rising, era of cheap money, and cheap and easy money come to an end, while our hard-earned, honest money Finally be worth something. Let's go on to slide 12. Top five, well, boring because, you know, what's the same number of same companies, same names as last quarter. So we've got to keep coming up with new pictures and new programs quickly. The SM-3 missile, that's an AAE program, ablative. It's a fast one. It's a fast damn missile. Mach 13, I guess, is about how fast it goes and some variants of it. The HM20neo, you probably think that's an MRAS reference. It's actually GKN because GKN also supplies into the Link 1A program with our materials. The 737-800, that's Nordam. That ties into Nordam. Nordam does this Weathermaster radome, and they're used in a lot of legacy 737s as well as the MAXs, as I understand. Kratos, they're kind of a regular these days, and this is one of their drones. This is a target drone. Okay, let's go on to slide 13. Not much here except first six months. This is pie chart stuff, which I kind of like, but not too much shocking stuff here, I would say. But if you look at the first six months, it seems to be following on the pattern of the last fiscal year, more or less, with a couple of percentages here and there. Not a lot difference, so whatever it's worth. Let's go on to slide 14. Park loves niche military airspace programs. This is always Elena's project to come up with kind of cool new programs to discuss with you. These aren't always the biggest ones, but they're the fun, the cool stuff. GBSD, that's parts and materials. And it's actually more structures than ablatives. Raytheon MK-56 guided missile, ablatives materials. E2D Hawkeye, that's some parts we're producing. Probably the most fun is this helmet and spacesuit stuff by David Clark. This is for the Orion space program. So in the category of cool, I think that might get the award for this quarter. And, you know, you see the part chart, nothing dramatically different. I think we've talked, you know, radons, rocket nozzles, drones, usually in the niche category. There are plenty of aircraft structures for military, which would be considered niche as well for us. Niche for us is good. Slide 15, so we covered this last time, but with a little bit of a different angle, so we'll try again to cover this topic. New World Order, we certainly covered that, the sea chains and defense industry based upon the war. Two major impacts, significant increase in defense budgets and spending, Europe, Asia, as well as North America, we covered that. De-globalization, didn't really touch on that last time. This is individual countries in Europe and Asia, taking more responsibility for their defense needs and spending. These countries are less willing to rely and depend predominantly on the U.S., NATO, other alliances for their defense needs. Best example is probably Poland, which is really up on the ante, significant increase in spending, both to expand and modernize the military. Let's go on to slide 16. And not surprisingly, surprise, surprise, missile defense systems, including the PAK-3 Patriot missile, One of the key areas of emphasis, you know, when people are shooting rockets at you and missiles at you, you know, missile defense systems probably come to mind. As previously discussed, both Lockheed and Aerojet have recently announced a significant increase in interest in orders for the PAC-3 missile system. Now, PARC supports a PAC-3 missile defense system with specially bladed composite materials, and we believe our sole source in that program Pac-3 missile defense system used in Asia, Japan, South Korea, Taiwan, key parts of their defense systems. And these countries, not surprisingly, are in the process of upgrading their systems and adding systems. It's kind of a rough world right now, unfortunately. We're not happy about it. We're just supporting these programs. If it was up to us, it would be a different world. The Netherlands and Romania, they're buying Paktri missile defense systems. And Poland, thank you, Poland, they're ordering additional. They already have Paktri, but they're ordering more, ordering more Poland. Slide 17. Just continuing on military markets, trends. As previously discussed, we've got to go into this because we gave an indication last time which we need to adjust. Park received customer and OEM indications regarding significant increases in ablative materials and Raycarb C2B product requirements to support the PAC-3 and other missile defense systems programs. So last quarter we said that we thought our ablative and Raycarb C2B product sales would be well over $10 million in this fiscal year. However, based on recent inputs from our key customers, I believe 6 million of the Raycar product, which is planned, that sale was planned for Q4, that in whole or in part may be pushed into the next fiscal year. So just for perspective, we're not saying this is what will happen. If all those C2B Q4 sales are pushed into the following fiscal year, our fiscal 23 sales of Abletas and C2B product would probably be at 6 million. Now, like I said, we're not saying that. We want to give you the baseline. If you want us to guess, and please underline guess for me, for us, we would guess about a third of that $6 million stays in this fiscal year, maybe two-thirds moves into this fiscal year. So maybe two of the six remains in this fiscal year, another four maybe gets pushed. So you can do the math however you like. Slide 18. Big caveat, I'm gonna do the caveat stuff here. The New World Order is seemingly far from immune from the serious supply chain inventory management challenges the defense industry is facing. It has been reported that the U.S. defense industry supply chain is struggling, maybe badly, to meet the significantly increased industry demands. Okay, so now we're gonna go on to commercial, slide 19. Thanks for bearing with me here. So commercial market trends and considerations. So we discussed this many quarters now, the industry collapse, the beginning of the pandemic, subsequent recovery, and lots of details. We're not going to go over all that again. But suffice it to say that the commercial aviation industry continues a strong recovery and rebound from the pandemic and economic crisis. Sorry, domestic commercial aviation industry It continues to lead to recovery, domestic commercial aviation, generally serviced by single aisle aircraft like the A320neo family. The customer demand seems to be there to support the continuing robust recovery of commercial aviation. Let's go on to slide 20. But, and there's a big but here, watch items, watch and caution items. These raise concerns about the sustainability of the recovery. What are they? The obvious ones, a broken record, the economy, People continue to fly. The economy falters badly. My neighbor loses his job. Maybe I won't take that really fancy vacation. I lose my job. I'm not going anywhere. You get it. Inflation. Oh, my goodness. Will the flying public continue to be willing to absorb these escalating ticket prices as the airlines pass on their significantly increased costs for jet fuel and other stuff like people? Labor shortage, pilots, mechanics, flight attendants, ticket handlers, you name it. I have a good friend who runs an airline operation, and every time he should come, that's the first thing he talks about. I can't find people. Will the airlines be able to provide appropriate services to the flying public, or will they be required to rush and cut back to schedules and operations? And the $64,000 question, if the commercial aviation industry does falter, and airlines seek to defer, push out, cancel new aircraft orders, how will the commercial aircraft industry respond? That's what we're tied to, the aircraft industry. Maybe the answer would depend on which OEM we're talking about. If it's Boeing, I would suspect they may respond differently than Airbus. Airbus may try to press their advantage even more aggressively. I'm speculating. I don't know. I'm just kind of putting it out there. Flight 21. And, of course, even if the commercial aviation industry remains strong, the aircraft industry still needs to deal with its own massive challenges related to what? I know, broken records, supply chain, labor, staffing, inflation. Yes, big things that are not going away. Maybe getting worse. I don't know. You probably know more about it than I do. An interesting new wrinkle that complicates things for all of us, of course, we like simplicity in our presentations. Demand for international travel, sorry, now recovering pretty nicely. That was not supposed to happen. According to all these pundits and all these commentators and industry experts, not supposed to happen for a couple of years or maybe ever. You know, maybe international travel is dead forever. But now, as a result, a number of these analysts and commentators are now predicting a resurgence for wide-body. Wide-body, long-range international aviation, are generally serviced by wide-body aircraft. There's a connection. So it's interesting timing for this predicted wide-body resurgence. Since Boeing will soon deliver its last 747, Airbus has canceled the A380. Let's go on to slide 22. So it's just an opportunity for the 777X, which is, as far as I know, the only aircraft in the mix which has close-to-the-range and passenger capacity profiles in the 747 A380. Well, maybe. And also, I've got to ask this question. How mature will the A321XLR take from the smaller widebodies like the 787 and A330? And will the XLR be a damper on the widebody resurgence? Don't know, but something to think about. And the last silver lining, we've discussed this before. Generally, higher jet fuel prices provide airlines with extra motivation to more quickly replace the gas guzzlers airplanes with more fuel efficient modern airplanes such as the A320neo or maybe the 737 MAX. And there are reports of this happening that airlines are swapping out their legacy airplanes earlier than they originally planned because of the very high jet fuel prices. Let's go on to 23. So this is a slide that we share with you every quarter, just kind of give you a summary. We have a firm pricing deal. requirements contract through 2029 with Middle River Air Structure Systems. They're a sub of SD Engineering. What is this all about? All these seem like GE kind of engine programs, so what's the connection? As I think most of you know, Middle River MRS was a sub of GE Aviation, and when we entered into this deal, they were a sub of GE Aviation, so we've all this GE Aviation legacy work through MRS. We built a redundant factory for them and GE Aviation sole source for composite materials, end of the shells, thrust reversers on these programs, which we won't tick off. You know, they're mostly, what, the A321 family, Comac, and Bombardier. That really sums it up. 7.7 is going away, as we know. Let's go to the bottom right here. This is something we did add in this quarter. Hopefully, it's not premature. Hopefully, we don't jinx ourselves. This is fan case containment wrap for the 9XG, 9X engines for the 777X aircraft. We talked about this before, but then the airplane kept getting delayed and pushed out and delayed and pushed out, so we kind of cooled it on discussing it. But now it seems like there may be a resurgence. We produced the AFP composite materials for this containment wrap. Is it making a comeback? We don't know. We just have to remind you also that it's possible that the containment wrap will be designed out of saffron is attempting to redesign the FAAG case to eliminate the need for the containment raft. So that risk has been there for a long time. I just have to remind you of it. Okay, let's go on to slide 24. These slides can be tedious, but we're doing our best here. We're trying not to go over things we've gone over so many times. So let's talk about update on GE Aviation Jet Engine programs. Obviously, we start with the big kahuna, the A320 aircraft family. the LEAP 1A engines, and you could read what that film includes, a whole bunch of different aircraft variants. So we discussed at length over the last several quarters anyway, Airbus's public indications about its aggressive ramp rate for these programs, then the supply chain publicly expressing skepticism and challenging Airbus about their expectations, and then the failure by certain members of the supply chain to meet those expectations, and the public tension which exists between Airbus and certain members of the flight chain because of all the above. So we're not going to go over all the details of that again, just to kind of remind you of this dynamic so you have a perspective. Slide 25. Let's say, suffice to say, though, that Airbus has indicated its intention to achieve A320neo aircraft family production rates of 65 aircraft a month by early 2024. and 75 aircraft per month by mid-25. And even though the ramp-up to these rates is admittedly aggressive, Airbus has double, triple, quadruple down on its commitment to meet these rates. Also, this is a big one. Shockingly, Airbus recently indicated, I think the last couple weeks or so, its intention to achieve a production rate of 50 A320neo aircraft per month by the end of this year. That's like now. 50 per month. So, wow, that's kind of a big deal. I mean, this year, what is that like, you know, next week for one thing, according to air, one thing, sorry, which according to Airbus was quite clear is the market and the HP 20 Neo aircraft family backlog are there to support these aggressive rates. It's almost no doubt about that. This is not a matter of whether they have customers to buy these airplanes. It's a matter of, can they produce these airplanes and ship the airplanes? And you know, there are, Airbus is very much pressing the supply chain to support these rates. Their current backlog for the A320neo aircraft family, 6,150 airplanes. Now, I'm not an expert in this stuff at all, but I can tell you that's a heck of a lot of airplanes that they have in their backlog. Let's go on to slide 26. Still on the updates. Do we think Airbus will hit these targets? 65,000. early 24, 75, mid-25. Yeah, we think they will come close. Why? Because they're hell-bent to get there, and they have a lot of good reasons for it. In our opinion, for whatever it's worth, probably not much. The supply chain should focus its energy on supporting Airbus' aggressive A320neo production targets rather than publicly challenging them. To us, we think it's kind of strange that that's being done. And Park, as far as we're concerned, Little Old Park, we staked out our ground in this controversy. June 17, 2022, news release, we announced our full and only waiver in support of Airbus' planned production rates for the A-20 NEO family. For us, it's a privileged honor for us to be able to support this Airbus A-20 NEO program, which supposedly is going to be the biggest commercial aircraft program ever. We are all in. Let's go on to slide 27. We do this every quarter. So as of the end of July, CFM, Elite 1A, had a 59.75% share of firm orders of day through 20 nil family of aircraft. The source is Aeroengine News. That's like the Bible. Every month it's like 100 pages of huge amount of data. So this is not like somebody's just kind of off the top or they had opinion stuff. And actually 59.75, that's around the number. It's probably like 59.723 or something like that. Very, very detailed information is the point. Park also recently received updated H320 NEO engine composite material usage for MRAS. Why did that happen? Because we look at everything very, very carefully, all the data, everything we hear from Meribus, everything we could possibly integrate into our little computer, and we... challenge it and question it. Does it make sense? Does it make sense? And we went back to MRAS and said, you know, some of this information isn't looking right to us. Why is this information, usage information, so critical? It's because, remember this, when we supply material to MRAS or through their contractors, it's all supplied through the same spec. So we don't know where it's going. We don't know if it's the 8320 or Passport 20 or the 919, 747. So it's really critical for us to have this usage information So we can say, all right, if Airbus is producing this many airplanes and this is the lead market share, we know what that will translate to in terms of revenues per part. So anyway, we went back to them, we challenged it, and they said, yeah, you're right. They came back with all different usage information for us. Now, whether that's more accurate, it's probably more accurate, but whether it's totally accurate, we don't know. We just keep looking and checking, looking and checking. Anyway, here we go. Assuming a 59.75% CFM market share and the updated usage data, the 75 A320neo aircraft family per month rate represents approximately $32.5 million per year of revenue to park before rebates starting in 2025. Why do we focus on 2025? Because that's when we expect our film to be in our program, and also there's a built-in price increase in 2025. That's why we focus on 2025. based on our LTA. So we're not sure we're going to update this every quarter because the problem is this, that even if the engine usage information is not changed, the market share comes out every month and, you know, it changes. So we may be driving you crazy by saying it's up there, down there, you know, by a couple of, by, you know, a few hundred thousand dollars every time we do this, do a quarterly update. conference call so we'll see about that but just want to give you that information so you have it uh slide 28 still on updating g aviation so on a short interval basis parks a320 neo drive revenue will not reconcile to what uh airbus is doing it's just not going to happen there's all kind of reasons for that but this is key at the end of the day the only thing which matters to park in connection with the a320 neo program is how many a320 neo aircraft equipped with CFM LEAF 1A engines, Airbus produces and delivers. That's it. Assume we have the usage information correct. The rest is just timing, what quarter it goes into. But at the end of the day, what matters to PARC is how many of these airplanes are built and delivered with LEAF 1A engines. A little news on the XLR. We discuss this, I think, every quarter. Most of this is not new, actually. First test flight, June 15th. Certification expected next year, entry into service 2024. So it has a lot of unique capabilities. In addition, they claim, Airbus claims 30% lower fuel burn per seat as compared to legacy airplanes, over 500 foam mortars, and Boeing's not planning a response. Is this a game changer? I think a lot of people think it is, because this airplane has the ability to replace certain wide-body aircraft with much less expensive operating costs on shorter wide-body missions. So let's go on to slide 29. Okay, moving on from the A320, COMAC 919, here's some big news. In a recent ceremony at the Beijing Central Airport attended by President Xi of China, the COMAC 919 received its type certificate from The China FAA, the CAAC, kind of the China FAA. Now, COMAC still needs to receive a production certificate. I don't know if you're familiar with this, but usually the first thing the OEM will get is a type certificate, but they need to get a production certificate, which says, yeah, every time you make one of these, it's going to be the same. That's kind of a very superficial way of summarizing, but that's the kind of concept of a production certificate. That's really critical, actually, their production certificate. So they still need to get that in order to go into volume production. They do source a lot of the key components from Western suppliers. Congratulations, COMAC, for achieving this very important milestone. And this program is potentially a very important program for PARC. Unlike the H-320, the 919 at this point only uses a LEAP engine, so we're not sharing the program with somebody else from a PARC perspective. So let's go on to slide 30, the Bombardier Global 7500. Not a lot new here. Very good program for PARC. You know, the Bombardier, I think we talked about this last time, they recently announced the Global 8000 variant with a 2025 entry into service. Slide 31, this is the sad slide, Boeing 747-8. As you know, Boeing announces terminating production of the Queen of the Skies. The last remaining 747 is expected to be delivered this month to Atlas Air. I heard that actually one was just delivered, and then the ones being assembled, they're getting the last few, so that would go to Atlas Air later in this month apparently. A sad day for one of the best commercial aircraft ever built. I think Atlas Air has more of the 747-8s than anybody. And saying goodbye to the great 747 in Anchorage, Alaska, That's where the 747 reigns supreme. And I'm telling you, you see a lot of Atlas airplanes, a lot of Atlas 747 airplanes. They're almost all, I shouldn't even say almost, all for freight, for cargo, that are coming out of Anchorage. Lots and lots and lots of 747 operations in Anchorage, along the way up to Queen. So let's go on to slide 32. This is where things get kind of complicated. So the left part of the... Left-hand column is just history. Nothing too earth-shaky here. CQ2, $6.1 million. So it's been in that $6 million to $7 million range per quarter for a while now. Okay, got it. Then look at the right side of the page. What is this about? GE Aviation Program's sales forecast estimate for Q3, $4.25 million. What the heck does that mean? And this is a good number because, you know, this is basically what's booked. We don't think we're going to get any new orders for shipment in Q3. So this is going to be the number. So what the heck is going on here? Good question. Let's go on to slide 33. This gets a little bit, I don't know, delicate, let's say. But let's talk about what's going on here. First of all, let's talk about the programs, which we just covered. A320, 50 per month this year. 65 per month early 24 75 per month by 25 when do we have to be at 50 per month to support 50 per month this year like you know six eight nine months ago how about 65 per month early 24 we should be ramping to that level already 75 yeah that's going to follow shortly thereafter so what the heck is going on here and linda 919 just got certified that would be good news 7500 doing quite well so what is going on here? We talk about downstream inventory and production management challenges and dislocations, so we want to talk out of school here, but, you know, a lot of loyal investors are very interested in this stuff, and we think we owe you some kind of explanation as to what the heck is going on here. You know, it's funny with this inventory management stuff. We're from the electronics industry, you know that. Electronics industry is You have no visibility. You're lucky that you have no lead times. There's no visibility. There's no forecast. I mean, you're lucky that in a lot of cases with these airplanes, there's six, seven, 10-year forecasts. Electronics would be great and happy to have six-week forecasts. But, you know, electronics, the industry was very effective at managing inventory and production. We didn't have these kind of crazy wild swings. That's the irony of it. In aerospace, apparently, this is kind of a common thing. It's not just related to our customers. And I don't know, apparently it's not getting better. It's a very poor track record with managing inventory and production. So it's always overshooting, overshooting, overshooting. Even though there's these long-term and market forecasts, that should make it a lot more straightforward to properly plan inventory and production. So the explanation, well, there's finished goods inventory. The question is, okay, how much and where? Haven't gotten a meaningful answer. So You could imagine how exasperating and frustrating this is for us, and it's what we're dealing with. At the end of the day, the only thing which matters to the park in connection with the GE Aviation Program we support, the only thing that matters at the end of the day. How many LEAF 1A equipped A320 family aircraft Airbus delivers? How many 919 AIJ-21 aircraft Comax delivers? How many global 7,500, 8,000 aircraft Bombardier delivers, period, and the story. But there is a big but, though. The downstream inventory and production management dislocations create major challenges for PARC in managing our production supply chain. So the thing is, it's almost like we're Omer's enemy. We're known, our colon car, to be very flexible, very agile, very responsive. I think people just kind of maybe take advantage of that. Oh, Park, we'll just turn in a dime, and we will. But our suppliers, no, sir. No, ma'am. That is not true. So it makes it much more difficult for us because maybe we can turn in a dime. Good luck with our suppliers. If we go to suppliers that's kind of crap, what they're going to do in two seconds is, okay, thank you. We're going to give your allocation to somebody else. Then it's time, you know, to ramp up. Oh, sorry, we can't do that because the supplier gave your allocation away. And you know what's happening. Sorry, you know what's going to come. I mean, it's just math. It's just math. It's only a matter of time. I don't know when. We'll get that call. Oh, boy. We already did it. We've got to ramp up fast. And this is what we deal with on a daily basis, weekly basis. And I don't know if it's getting better. Like I said, I don't want to talk out of school, but, you know, we've got a lot of loyal shareholders that have been with us a long time. And I think you're understanding an explanation of, you know, why the heck would we be looking at that kind of number for Q3? So that's our explanation. We're sticking with it. Slide 34, let's go on to the forecast for PARCC. So, you see, first of all, you got the Q3, Q2 actual, we stated that. Q3 forecast, nothing earth-shaking here. Three and a quarter, starting at 13 and a quarter, 13.75, 13 and three-quarter sales, three, 3.5, just to be . Now, we really wanted to give you a Q4 forecast at this point, and we actually, the first draft, we actually had it, but it really, it wouldn't have been meaningful, and mostly because these two big variables from Q4. One is this C2B product we discussed on slide 17 at some length. We just don't know how much of that is going to be pushed into next fiscal year. So it really makes Q4 very up in the air. And also, you know, the forecasting that we're receiving over the GEA vision programs, quite suspect. So it would not be possible to provide you with a meaningful forecast for Q4 at this time. So we're sorry about that. Like I said, we really wanted to but it just wouldn't be meaningful. Let's go on to slide 35. Now we're doing time, not so good. Sorry about that, I said 45 minutes, it's already 45 minutes. So we covered this, these slides are pretty much what was in the last presentation, so we'll just skim over it. I'll just start by saying, you know, forecasting, highly problematic, probably not very meaningful in the current environment. which is supply chain chaos and disorder, significant inflation, serious recessionary concerns, and staffing challenges. Very difficult to provide short-term, and certainly long-term forecasting wouldn't be that meaningful. But we go through what we think our outlook is, because we think we can provide you meaningful input on a company's outlook, even if there is an economic recession. A lot of people say there already is, but even if there's a recession. So we're not going to go through that. Feel free to read it, ask us questions if you like. Let's skip over to slide 38, where we have the kind of bottom line at the end here, based upon the above considerations, although there are serious concerns about the economy, inflation, workforce shortage, and supply chain chaos. We believe the outlook for parks is quite positive, and like I said in the past three slides, we went through why we believe that. Let's go on to slide 39, a major expansion, Kansas. We can cover this pretty quickly because I'm not even going to read the numbers to you. I mean, there's really not much news here. Last item, while many others are slashing their capital budgets or canceling their capital budgets altogether, we've pushed forward and completed our expansion. Okay. Let's go to slide 40, James Webb Space Telescope. This is our cool slide, fun slide. I think this is our second fun, cool slide. So, reminder, 21 of our proprietary Sigma struts are incorporated into the James Webb space. James Webb, along with those truts, is established at the Lagrange 2 orbit point, which is about 1 million miles from Earth. That just kind of blows my mind. I think those truts were reduced in a little factory in Kansas. They're a million miles from Earth. So Don and Elaine are in charge of this. We have so many really cool photos, images from the James Webb. And I said, okay, great. You gals have to choose three, so that was hard because you probably had to choose 100. These images are just so unbelievable to me, just so awesome. I can't explain what they are. Lena is our resident James Webb geek, so she could probably give you a great explanation as to what these images are about. But I did see something interesting in an article where it said that – A recent article indicating that James Webb is seeing stuff which is not supposed to be there. I thought it was very interesting. I digress for a second. Isn't that the whole point? Seeing what is there rather than what's supposed to be there? Isn't that what science is all about? It doesn't matter what you believe is true. Science is about the truth, reality, not what you believe or what's supposed to be there. That's how science progresses. That's how the human kind progresses, I think. Not getting hung up on what people believe is supposed to be there. For Einstein, time and space are supposed to be absolutes. Supposed to be absolutes. But it doesn't matter what they're supposed to be, they're not. Anyway, I'm digressing, like I said, but I just found that kind of very interesting and I don't want to spend a lot more time on James Webb, this article about seeing stuff not supposed to be there. Okay, let me move on. Slide 41. So sorry about this. A lot of you are looking forward to a really great update on the ADL. Just a reminder, our materials are currently sole source qualified on ADL's ADRS program for the 737 Legacy aircraft. There are many thousands of 737 Legacy aircraft with service around the world. You can look it up. I think it's over 5,000. However, recently ADL asked us to locate about the ADRS program. So we're not going to provide any new updates to the program at this time, except to say we continue to work actively on the program opportunity, and we're also very pleased to have the opportunity to participate in this exciting, potential program. So sorry about that again, but we want to honor ADL's request to this point. 42, this is kind of a big one, slide 42. We've been talking about space set aside and new faculty for project initiatives. So let's update major potential project initiatives and new plant. So we've been talking about this for several quarters, but we haven't told you what we have in mind. But now the big reveal, we're going to tell you about one of the main projects that we have in mind. This project relates to automated fiber placement, AFP manufacturing of aerospace composite structures. Our final decision has not been made in the project, but PARC has conducted significant due diligence on the project. The capital investment for the equipment, including all support equipment necessary to provide complete AFP manufacturing capability to interested customers is estimated to be approximately $10 million. Although the equipment location decisions are still being reviewed, we believe that all the equipment involved, and it would be a lot, would fit in our recently completed major expansion in Newton, Kansas. Let's go on to slide 43. Continuing with the subtenant AFP. So what is AFP? AFP manufacturing utilizes robotic technology as a form of additive manufacturing technology as compared to the subtractive manufacturing technology utilized by conventional hand layup of composite structures. That's an important point. Now, if PARC proceeds with the investment in AFP manufacturing, it should be seen as a long-term strategic investment. It would not be a quick payback investment. This would be long-term, would be strategic. At this point, AFP manufacturing is generally done in-house by large aerospace OEMs, not people like Park. But we believe there may be a niche for us in AFP manufacturing of aerospace composite structures. If Park proceeds with this project, it may at least to some degree also, though, be a build-it-and-they-will-come type project. So it'll take some conviction and courage to do this, but, you know, we normally are short of those things, I don't think. There are many potential advantages to AFP manufacturing of aerospace composite structures compared to traditional hand layup manufacturing, which is what we do now and what most companies do. Labor cost reductions relating to elimination of certain manual processes, just don't do them with AFP. No ply cutting, no manual layup. I'll go on to slide 44. What is this not? We're not interested in automation to replace our existing people. A lot of companies talk about that. That's not what's going on here. and big but since it is and may continue to be indefinitely very difficult to properly staff operations, AFP automation may be a very useful strategic approach to supplementing our existing workforce in order to facilitate expanded manufacturing activities. Expanded strategic, I should say, manufacturing activities. Cost savings related to very high material utilization rates from the AFP additive manufacturing process compared to much lower yielding material Utilization rates associated with a hand lab subtractive just think about it when you do subtractive manufacturing you're subtracting stuff You're taking stuff out of the equation throwing it out So material yields were subtracted manufacturing a lab who could you know significantly you'll loss You know to 10 20 30 percent. I mean that's huge and if a manufacturer is not because it's a the if you're not tracking if you're only adding So that's a big difference Also, significantly improved quality, reliability, repeatability, and consistency associated with the AFP automation, process automation, which is kind of typical of automation as compared to manual operations. It's also potentially better suited for volume manufacturing, especially of larger composite structures. Now, the disadvantages, let's go on slide 45, AFP manufacturing. AFP manufacturing, like most automated processes, may not be well-suited for lower-value production, especially of awkwardly designed, quickly-composed structures. So quick turns, smaller volume, the economics may not always be there. Also, this is the big thing. This is a big, big barrier to entry, significant upfront investment. We told you the dollars, but the learning curve costs, it's a big, big deal. So a lot of companies think, oh, not for us. There is still due diligence which needs to be completed, and there is no hard deadline for the final decision on an AFB project. We're hopeful to be in a position to make a decision in the near future, and we'll keep you posted. We don't know if we're going to do it or not. We may not. We thought we should share with you what we're doing. We're putting a lot of time into it and doing a lot of work on it. Potentially, though, I think it would be a pretty exciting project for PARC, although, like I said, it's kind of a long-term project. Concept rather than you know a quick ROI or payback. Let's go on a 46 like 46 parks people Changing gears here completely update on our great customer flex program. So you see the numbers percentages It just wouldn't be possible to continue to get the job done under the current very challenging Circumstances without our customer flex program. That's not just a Hyperbole, this is a fact. I mean, every day our customer flex program becomes a factor for us, has an impact on our ability to get things done. Parks per current people count, 99 people. That's not a good number. Ideal head count, people count would be 125. Minimum people count to properly operate and function, 115. So what's going on here? What is going on here? There are a number of factors, but one important factor, this may not be politically correct, but I'm not here to be politically correct. I'm here to tell you what we're thinking and what we believe. One important factor is that certain other companies, mostly larger companies, have been aggressively targeting people for recruitment. People on LinkedIn, it's so easy to find them. They want people from this function to that function. 547. So maybe this is just capitalism, the free market of work. Sure, isn't that great? But is it? Some of these companies, which are targeting our people, were given huge amounts of government money. Where did the money come from? From us. Other taxpayers like us during a pandemic. Huge bucks. This government money, funded again by us and other taxpayers, was intended to incentivize the recipients not to lay off their people. But in some cases, recipients laid off significant numbers of people anyway, thousands. In some cases, the recipients of the government money funded by us are still losing very big bucks. So you tell me, is this just capitalism and the free market at work for the government to take our hard and honestly earned money, tax money, and give it to others who have done nothing to earn it or deserve it? So those others can use that money to aggressively target and recruit our people. Is that capitalism? Slide 48. Maybe it's crony capitalism or phony capitalism or no capitalism at all. What do you think? And one more thing about these companies who are targeting our people. What will they do as soon as the people they recruit and hire are not needed? Is anybody going to keep them? Well, Maybe come up with your own opinion about that. In any event, whatever the cause or the politics of it all, we're dealing with our workforce challenges as we always do. We don't give up. We keep going. We don't sell out. We don't sell our souls. We keep coming up with new ideas. We keep working at it. But we're not looking to sell out. We're looking to use this challenge as an opportunity to actually upgrade our workforce and make sure we're the right kind of people working in the parks. Latest idea, which seems to have some promise, is bringing on a weekend shift. I could tell you that Courtney, Nancy, and Corey as well, is something we're putting so much effort into all the time, all the time, all the time, working it, working it, working it, coming up with new ideas, meeting with prospective employees, promoting the park culture, a lot of effort, and it's worthwhile to do it right. rather than to do it wrong, and that's my opinion. Slide 49, back to parks people, another not-so-great story, inflation. Now I'm not talking about parks inflation. We're talking about the inflation our people deal with in terms of living every day. Even though we didn't cause it and we're not in a position to stop it, it's very hard to hear people talking about choosing between buying gas and food. It's very hard to hear that. And this is not rocket science. Any high school economics student will tell you, if you pump trillions of dollars into an economy which is only recovering from the pandemic, then you seek to shut down the oil and gas industry, you will cause significant and persistent inflation, not transitory inflation. The people who cause this inflation, they're smart people. They knew what they were doing. They understood the consequences of their actions. But in our opinion, they just didn't give a damn. They just don't care about our people. how their actions are going to hurt our people, are hurting our people. To them, our people are expendable. They don't matter. But to us, our people are not expendable. Our people matter the most. Our people are precious. Slide 50. So we recently implemented an inflation pay premium for all of our people who are making approximately $60,000 or less per year. As I say, we did not cause this brutal inflation. And we're not a position to cover all the, you know, all the sins, all the damage done by this brutality, but it bothers us. It bothers us a lot to see our people suffer. So we implemented this, uh, inflation pay premium to do what we thought we could do to help our people. And you should know since, uh, you know, sometimes numbers matter that this recently implemented inflation pay premium will cost us approximately 150,000 bucks per year going forward indefinitely. Let's go on to slide 51, closing thoughts. Sorry to go on so long. It's already an hour, but we're just at our closing thoughts now. So let's see if we can wrap it up. At PARCC, during and throughout the pandemic, the topic here, the theme is we earn what we get. At PARCC, during and throughout the pandemic, we kept all of our people. We laid off nobody or many others. We're cutting their employees loose by the thousands. We made money every quarter. every quarter while many others were losing money by the bucket loads. We maintained our quarterly cash dividend while many others were slashing their cash dividends or canceling them altogether. We continued and completed our major plant expansion while many others were slashing their capital budgets and spending or canceling them altogether. We maintained our outstanding balance sheet of significant cash and zero long-term debt while many others were leveraging their balance sheets just to stay alive. We paid our taxes, lots of them, while many others were paying none, maybe generating NOL, so they don't pay tax in the future either. We took the government handout for corporate welfare money, although we easily could have taken it, lots of it. I was told by lots of people, Brian, what's wrong with you? It's free money. Take it. Go take it. You take millions of dollars. Many others were taking huge amounts of government handout money funded by taxpayers like us. Money comes from us. Slide 52. At PARC, we remember what we get. We don't want to ask for or accept government handouts or corporate welfare. What do we want from the government? Not that nobody's asking, but I'll tell you anyway. Our only ask would be to stop taking our hard-earned, honest, and decent money and giving it to other companies which have not earned it and do not deserve it. One of the keys to success in life and business, a park, achieving great things through sacrifice and dedication. For certain others, we're not sure. What is it? Hiring better lobbyists? Make sure you're at the front of the line for government handouts and favors? What sense of value is that? What kind of values are those? Kind of sad. But a park, we're not like the others. A park, we play for keeps. At the end of every presentation, we'll always feature some, you know, park people, a crew, or department. So bottom right, this is park solution, a mixed team, a crew. We have William looking very cool with his shades on with Johnny. Johnny is the, you know, how should I say it? The guy who's done this the longest. I don't want to say old-timer, but Johnny's the veteran. And Daniel, Daniel's new in the team, but I understand Daniel's doing very well. Great new addition to our solution mix group. So let me tell you something. You know, we used to have electronics locations, and I come to my head, I think we had about 14 locations which had solution mix rooms around the world. And every time I go visit a location, I go see the mix room. Why is that? Because that's always the dirtiest, crappiest looking room. It's resin is dripping everywhere. It's caked on the floor. It's And when I throw it into the factory, it's often the management, local management, would try to steer me away from the mixed room. Of course, that means I would be more determined to go. I've probably been in mixed rooms hundreds, maybe 300, 400 times over the years. It's not an exaggeration, probably 300 or 400 times. This is by far the cleanest mixed room, solution mixed room I've ever seen anywhere in my life. And I never asked these guys to do anything. They did this on their own. So it means so much to us. It means so much to me that people take the initiative to create such a wonderful environment, such a beautiful mix room. And I know you probably haven't been to 300 other mix rooms, but if you had, you would know what I'm talking about. They didn't clean this up for this picture. This is how it looks all the time. Beautiful. As people say, we get off the floor. I said, yeah, maybe we should have a little picnic eating off the floor in the mix room. So to me, it means a lot. Very special. And thank you very much to William, Johnny, and Daniel for doing such a wonderful job in terms of keeping the mixed room in such a beautiful condition. Okay, operator, that ends our presentation. And Matt and I have to take questions at this time.
spk02: Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question field. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is on the question queue. Thank you. Our first question is from Brandon Deets with Hoffman Prairie Holdings. Please proceed with your questions.
spk01: Hey, Brian. How are you doing today? Thanks for taking the question. Not too bad. I just wanted to follow up real quick on the GE Aviation Q3 guidance. Pretty decent size reduction from Q2 to Q3. And I may have missed some of your commentary, but can you provide maybe just a little more detail? I mean, is this just a calendar shift into Q4? Do you expect a recoup? kind of those missed sales in the following quarters. Just hoping to get a little more detail around that reduction.
spk00: So if you missed it, you know, we did a pretty – I did a lot of commentary on this point, and you probably want to go back and listen to it. I don't really want to – I certainly don't want to go over all the commentary again, and I don't want to try to sum it up unfairly because there are a lot of factors here. And somewhat of it is – a little bit delicate, let's put it that way, but I think what I did was I tried to be as candid as possible out of respect for you and other long-term shareholders that are really interested in what's going on. My suggestion is go back, listen to that portion of the call if you haven't, then give us a call and ask if you have any other follow-up questions about that point, if that's okay.
spk01: Okay, yeah, yeah, that's definitely okay. We can follow up with you on that. I did have a question on the 2025 32.5 million figure. I'm pretty impressed by, you know, the increases you guys have noted over the last few quarters. If I go back and kind of back into the ship set value, that implies it's pretty decent. I think eight to 13% increase over the last few quarters. Is that just pricing or are you able to provide any commentary on what's driving the increase in, and ship set that you guys are seeing?
spk00: Yeah, that's just for the H320 also. So I guess a couple things going on here, a few. One is we have these new usage numbers. Remember, as we had questioned whether the prior usage assumption was correct, remember, when we ship something, we don't know what program it's going to because all the programs are shipped to the same spec. So this usage information is really critical to us. So the usage information changed and went up. More square feet of material per ship set for A320. Second thing is that in 25, there was a built-in price increase based upon our LTA. So that's fixed. That's part of our LTA. And the third thing is that I mentioned that by 2025, we also expect that film adhesive would be on the A320 program. So those are the three factors that would affect the A320 unit numbers, let's put it that way.
spk01: Okay, okay, excellent. All right, well, that's everything I had. Once again, appreciate the time.
spk00: Oh, yeah, I appreciate your time and a long call to listen to, but thank you.
spk01: Thanks.
spk02: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. There are no further questions at this time. I would like to turn the floor back over to Brian Shore for any closing comments.
spk00: Thank you very much, Operator, and thank you all for listening. I apologize for going so long. This is the longest we've ever done, I'm pretty sure. Also, I apologize for the coughing. I can only imagine just irritating to listen to that. So, you know, I got through it, but without probably some distracting coughing noise. So thank you for hanging in there and bearing with me on that little issue. So thanks again for listening. Feel free to give Matt and me a call anytime if you have any follow-up questions. And have a good autumn, and we'll talk to you soon. Take care.
spk02: This concludes today's conference. You may disconnect your lines at this time. Thank you for your cooperation, for your participation.
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