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spk04: Good morning, my name is john and i'll be your conference operator today at this time, I would like to welcome everyone to the park aerospace corp fourth quarter full year 2023 earnings release conference call and investor presentation. All lines have been placed on mute to prevent any background noise after the speakers remarks, there will be a question and answer session, if you would like to ask a question during this time simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, please press star and then two. Thank you. At this time, I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Thank you, Mr. Shore.
spk01: You may begin. Thank you, John, and welcome all to our Fiscal 2324 Investor Conference call. With me, of course, Matt Farber, our CFO, as usual. We announced our fourth quarter earnings this morning, so you want to pick up on that if you haven't so far. Any earnings released are instructions as to how you can access the presentation that we're about to go through. You can get it on our webcast. It's also on our website. I don't know if you noticed, but for our standards anyway, the presentation is a little bit shorter than it has been recently. I think it's about 40 slides or 39 compared to over 50, maybe 55. But there's a lot to cover still, so it may still take the same amount of time We're trying to take a little bit of different approach this time. We're going to focus less on program and project updates and industry trends. If you want that information, I suggest you might want to go back and check our Q3 investor call presentation or the company presentation, which has a lot of detail on that information that we tend to cover quarter after quarter. But like I said, a little bit of different focus we're going to try this time. We will cover the numbers, but then it will be more, this presentation will be more on our outlook, something new we haven't given you before. It'll talk about capital, dividends, and we'll talk about recent announcements. So Matt and I will then answer after we're done with the presentation, going through the presentation, Matt and I will be happy, of course, to answer any questions you might have. So why don't we get started? Here we go. Let's go to slide two, our forward-looking disclaimer. Just let us know if you have any questions about our forward-looking disclaimer. Go to slide three, and we have a little table of contents here, the presentation, supplementary financial information in Appendix 1. As you know, we normally don't cover, go through that information, but let us know if you have any questions about it. We have a little bit of a teaser here. We have a photo of our new film line in production. We'll talk about this a little bit later, but if you didn't notice from the news release, our new plant has been approved for production, and it actually is in production. Let's go on to slide four. I have to slow down a little bit here. So here are the Q4 numbers. If you look at the right-hand column, sales $13,530,000, gross margin at 28.5%. As we always say, we don't feel very happy when the gross margin slips below 30%. We're not so pleased about that. EBITDA, just EBITDA, $2,625,000. So What do we say about our Q4 during our Q3 investor call? We gave some estimates. Remember, our forecast estimate philosophy is that we tell you what we think is going to happen. We don't pad it. We don't give you a lower number so we can beat it and become heroes, that kind of thing. I know that's what most other people do, but we just don't think that's appropriate for parks. So sales estimate was $13.5 to $14 million. We barely squeaked in at the bottom end of the sales estimate. But the EBITDA estimate was $3 million to $3.5 million, so we came in considerably lower, about $375,000 below the bottom of the range at $2,625,000. So what happened here? Let's discuss that. The obvious question is we made our sales number, why did we make the EBITDA number? So we should go into that and we will. And let's go to slide five so we can begin that discussion. So first of all, I want to give a shout out to our people for making the top line number of the sales estimate under very difficult circumstances, especially considering significant challenges with supply chain disruptions and unreliability. I know that you're probably thinking we cover this stuff every quarter. That may be boring to you, but it's real life to us. It's a real life day-to-day struggle and challenge for us dealing with these things. Now, we keep hearing that supply chain stuff will get better, is getting better. We haven't seen any meaningful improvement yet. And when we get to the Airbus A320 ramp later on in the presentation, maybe we could think about supply chain and how well it's doing, because that might be a good proxy for the supply chains. Let's talk about the, sorry, let's go to the next bullet item. We're getting, this is, okay, this is a little bit new. We're getting better at managing the challenges by building inventory where it's possible and appropriate and providing suppliers with longer lead times where it's appropriate, but it's still a very challenging and difficult situation. The freight disruptions and unreliability, we'll give you an example of that in a second. Ongoing staffing shortages, this has not gotten better for us, continues to be a very difficult challenge for us. They said there's full employment in our country, but that's because so many people have left the workforce, which to us is a real tragedy, not only for us but for the people whose, you know, kind of lives are lost and drifting that just have left the workforce and probably are not so capable of coming back to it. It's very sad. What will cause this problem to improve? I'm not sure, you know, with the full employment situation, but a lot of people say what was needed is a pretty good recession situation. So it hopefully doesn't come to that, and we'll see what happens. I guess I won't comment anymore on that right now. Let's go on to slide six. Now, here we go. Total missed shipments in Q4, approximately $1.4 million. That's a huge, huge number. You know, recently in the last few quarters, it's always a big number, but it's usually, what, $600,000, $700,000, $800,000, $1.4 million. That's a doozy of a number. But here's the thing, $1.2 million, approximately $1.2 million of that number where misshipments of higher margin ablative materials to overseas customers, really two shipments in Japan and Italy, two very big shipments. What happened? Rural materials came in late, see? There you go. International freight, this is a real challenge. Our freight is so refrigerated, we can't just put it in any truck, so that limits our freight options considerably. Then we go to international freight, it's even more challenging. And it's difficult for us to flex up our workforce when we're already maxed out. So we get the raw materials in the last couple of weeks. We're scrambling around always, always adjusting our schedule, not always, often adjusting our manufacturing schedule because of supply chain issues. But we don't have the ability to just kind of flex up because we're really maxed out in the last couple of weeks to get stuff through the manufacturing plant and through testing so we can ship. Factors which affected our margins. Now let's talk about margins. We talked about top line. Let's talk about margins in Q4 2021. So here's an interesting thing. It's just a coincidence, but it's that $1.2 million number. Again, fiscal 23 Q4 sales of approximately $1.2 million of Raycarb fabric sold by Park under our business partner agreement with Arian Group for ablative applications. Remember how this works? This is just a markup. So for a lot of our big customers, they want to stock this material. We have this exclusive arrangement with Arian Group in France. So we'll buy it, resell it, resell the product to the customer. We hold it for them often. And then when they're ready for us to produce the material, we'll produce the material with this fabric that they've already bought, that they own. It's a small markup, very small margin. That's the plan. Ultimately, it's a good thing, though. We ultimately... When we actually make the prepreg, the margins are quite good. So see what happened here? We lost $1.2 million of this high-margin product, and we substituted with $1.2 million of low-margin product. That alone, that one factor alone, would fully explain the EBITDA shortfall. You know, it would get us to the low end of the range, which is what you would expect since the sales were at the lower end of the range, okay? So that $1.3 million number is just a coincidence that it's exactly the same number, but it's very interesting how those two numbers work together. And like I said, I'll say it again, that factor alone, that's not the only factor, that factor alone would explain the shortfall in EBITDA. In other words, if that factor was reversed, we wouldn't have had an EBITDA shortfall. So let's go on to slide seven because there's more to the story, even though that factor alone would explain the EBITDA situation. What else are we talking about in terms of what affects our margins? Significant inflation. I think on the way here, beta is not for us yet. And I won't go through all these items because this is just a repeat of what we've discussed the last couple of quarters. Pretty much everything. Okay. We've discussed this before, but let me just remind you, some of these increased costs were passed through to our customers in the form of selling price increases. A couple of things here. First of all, you know, some companies are just, to us, I don't know, I mean, doing obscene price increases, like doubling their prices, and we're just not going to do that. You know, we're long-term players. We don't abuse what we consider to be abuse our customers when treated improperly and decently. So we do raise our prices, but not, you know, kind of in abusive ways. So why is that not totally covered? The cost increases, the lag effect. We talked about this. So when we accept a PO or agree to a PO, we honor that PO. Halfway into the delivery period, we don't say we're raising our prices to our customers, and that's something others are doing. We won't do that. And we have long-term LTA pricing with certain customers, particularly MRS. We're not able to just pass through our inflationary cost increases. Let's go on to slide eight. Supply chain disruptions causing significant inefficiencies in our manufacturing operation. So if you're familiar with manufacturing, you know what manufacturing people normally want is good planning, you know, plan out three or four months or five months in terms of what will be run and when. That's how manufacturing is going to be most efficient. Now, our calling card, It's not like others. Our calling card is to be responsive, be flexible, have urgency. So we like having the ability to move around, to adjust for customers. But this kind of stuff is just beyond our experience. We get some supply chain changes. We have something planned, and then the raw material doesn't come in. Something else comes in. We have to make adjustments. Every time we do a changeover, With these treating operations, there's a lot of downtime, a lot of expense, a lot of extra expense. It's hard to appreciate unless you've seen the operation, but it's a big deal. It's a big impact on our margins. Staffing shortages and limitations. So we're paying lots and lots of overtime and other inefficiency relating to our labor just because our staffing, rather, just because it's so tight. And, of course, related to the newly commissioned plant in Kansas. So it's a good thing. It's a great thing. But we just started to run it. So obviously, you know, we don't have it fully utilized yet. So there's a, you know, at least for a period of time, a negative impact of the cost of that new facility, that new facility, which we just started to actually produce product for sale. Let's go on to slide nine. So this is the fiscal year comparisons. And obviously, you look at 22 compared to 23 and say, geez, you know, the top line was about the same. 23 as compared to 22, maybe a little bit better. What happened to the bottom line? What happened to adjusted EBITDA? What happened to gross margins? Well, you know, it's those factors we already discussed, you know, inflation, supply chain, staffing. And we'll actually talk about that when we get a little bit further into the presentation in terms of quantifying what we think the impact of that was when we get to slide 27. So hopefully I'll remember to bring that up again when we get to slide 27. It's further down the presentation. Let's go to slide 10. We're going to move through this pretty quickly. We do this every quarter. Our top five, Aerojet, Rocketdyne, that's the Army Tactical Missile System, Aeromatrix, we don't have something from a photo for them, Kratos, we obviously have the Kratos Valkyrie, Middle River, we have the Boeing 777X, and then Nordam, we have the 737-800, that's for the Weather Master Radon. Let's go on to slide 11, my charts. My only comment is you note that 23 is very similar to 22, so it seems like we're kind of settling in to this kind of market segment breakdown. If you look at 21, it was very different, but obviously that was a pandemic year. So let's keep going. Slide 12, Park Love's niche military aerospace program. This is a slide we do every quarter for you. We like to show you photos of some interesting military programs that we're on. And then we have our pie chart. which is not that different than prior quarters, but rocket nozzles, drones, and radomes, we would consider those to be niche markets, space, small, but that's niche. Aircraft structures, even for us, it's niche. For other people, it might not be niche. To us, it means more margins, better margins. Let's go to slide 13. Okay, so we covered this, I guess, every quarter for the last few quarters, the trends and considerations in the the military markets we talked about the war at a length and how it's affecting the military budgets and spending let's go on to slide 14. do you have any questions about any of this stuff at the end let me know let us know but we're just going to kind of scan through it because we've covered these things before slide 14. uh i guess the top the first item arrow item is important because you know there is this desire to build up the military infrastructure but what's holding it back is supply chain limitations we also have some kind of issue regarding the debt ceiling negotiations. That seems to be a factor as well. But I think the big picture is really supply chain that's holding things back. Let's see, next item, missile defense systems. We talked about this. We talked about the PAK-3 Patriot missile. We're a sole source in that program for ablated materials. Lots of countries want the PAK-3 system for obvious reasons. Go on to slide 15. Last, the check item on slide 15 are sales of ablated materials. and this uh c2b fabric we're 7.75 million we're fighting that to you because we told you would that we you know we told you we'd give you an update at the end of the official year so you have that uh slide 16 we got some trends and considerations for um commercial aerospace and not too much new here the commercial aviation industry continues a strong recovery and rebound domestic aviation almost back to where it was pre-pandemic. International getting there as well, 75% to 80% pre-pandemic. Customer demand seems to be there. But there are some watch and caution items, which we talk about from time to time. Let's go to slide 17. The economy, will people continue to fly at the same rates if the economy falters? Actually, there are early indications that maybe that the economy is having some impact upon travel patterns, I heard that Airbnb announced recently that they're seeing a little bit of slowdown in travel. So just something to pay attention to. Inflation, so you know if you fly in airlines that the ticket prices are quite higher because the airlines have to cover the additional costs for the people and everything else, but especially jet fuel. So is that going to be okay? Are people going to continue to pay these prices? I don't know. Then the last check item on slide 17, yeah, these labor shortages, pilots, mechanics, flight attendants, you know, Sorry, you name it, and you got it. And then the other thing that we'll throw in, which we haven't mentioned before, what about those ATC delays that we're expecting near the summer? I mean, big ones. I guess some of the airlines are telling they need to cancel some of their flights because the ATC won't be able to handle it, particularly around the northeast corner. So that could be a factor. The $64,000 question, if the commercial aviation industry does falter, What are the airlines going to do? How would Boeing respond? How would Airbus respond? We discussed this before. I think they both would want to keep going with their production rate to ramp up. My opinion, not that I'm an expert, is that Airbus might be more capable of doing that. Boeing may want to but may not be able to for their own reasons. Let's go on to slide 18. And, of course, even if the aviation industry remains strong, The commercial aircraft industry still has to deal with its own issues. What are they? Labor, supply chain, inflation, you know, kind of a broken record. But these issues are not related to any one segment of the industry. They're not really related to one industry or one geography. They seem to be global issues. The silver lining, we've talked about this before, as fuel prices get more expensive, some of the airlines are looking to swap out their legacy gas guzzling airplanes for the more modern airplanes that are more fuel efficient. Let's go on to slide 19. You know, we've got to slow up here a little bit. We provide the slide every quarter, but, you know, pretty important stuff. GE Aviation Jet Engine Programs. So firm pricing LTA requirements contract through 2029 with Middle River Air Structure Systems. We call it MRAS. They're a subsidiary of SD Engineering Aerospace. I've got to remind you, we do usually, that what's going on here, why all these GE Aviation Programs programs, What does SDA engineering have to do with that? Okay, so I think you know, but I'll just remind you if you forgot, that Middle River used to be a sub for many, many, many years of GE Aviation, and we were put on all these GE Aviation programs when Middle River was a sub of MRS's sub of GE Aviation. It was subsequently sold to SDA Engineering Aerospace, a large Singapore-based aerospace company probably four or five years ago, but those programs continue because we're We're qualified in those programs. Just so you know, MRES and SCE are asking for a LIFR program. So our current agreement goes through 2029, they're asking for LIFR program. What does that mean? That means that we would reach an agreement under which we'll supply into that program until the program ends. So let's say the A320neo, you tell me when it's going to end. I don't know. I mean, these programs go for a long, long time. That's how LIFR program works. London Factory, yep, we finished that. It's in production. SolSource for composite materials, for engine decels and thrust reversers for these programs. The first five, let's call those the A320 NEO family. They all have the Leap 1A engines, the 747-8. So that program ended, but there's still spares, actually, for that program. Love that program. Comac 919, that's Comac's Chinese company, the 919 company. I'll cover this a little bit more carefully just in a slide because we don't have any of the discussion in the presentation about these programs. As I said, you can go back to the Q3 presentation or the company presentation, which is on our website if you want to get a little more detail on these programs. Comac is a Chinese company, and the 919 is designed to be the competitor for the A320 and the 737 aircraft. It's certified. They're starting production. I think they're just starting deliveries, so we'll see what happens with that program. ARJ-21, that's another COMAC program, and that's a regional jet, and that's already in production. It has been for a little while. Then we have the Bombardier Global 7500-8000 with the PESBOR-20 engines. Those are GE engines, and that's a business jet, a large business jet. Top right, PAR composite materials. We're also sole source qualified as a primary structure component for the Passport 20 engines. That's not actually included in the MRES LTA, but that's actually a GE program. And then the bottom right, fan cage containment wrap for the GE 9X engine for the 777X. That's produced with Park's AFP materials. It's not included in the MRES LTA, but the MRES people told us they want to put it in the LTA. But remember... And it's important. There's a design risk with this program. The company that produces the fan case is in the process of trying. They've done this a few times, so you could be a little skeptical about their ability to succeed. They're trying to redesign the fan case so that the case wrap will not be required. The case wrap is required in order to pass something called FBO fan blade out, which is an essential test that has to be passed. So the engine has to demonstrate that if a fan blade separates, it will be contained. It won't escape the engine compartment. Because if it does, it's extremely dangerous for the airplane. So that's kind of a non-starter. You can't have that. That's the issue. The FBO test has to be passed. So I just want to mention that it's a program we're really excited about, but there is some design risk with that program. Let's go on to slide 22. Just a brief update on GE Aviation jet engine programs. We're just going to cover the A320neo, really. Update you on that. The rest of the programs are not going to update you on. A320neo, we already said, with the aircraft family, with the CFM Leap 1A engines, includes the 319, 320, 321, 321LR, 321XLR, those variants. So Airbus recently, just I think about a week ago, reaffirmed their plans to achieve production rate and delivery rate of 75 H320neo aircraft family deliveries per month by the end of 2026. I think they said they want to get to 65 by the end of 24, actually. So will it get there? It's really hard to say if it'll get there by 26, but I would say I'm very confident it will get to 75. Why is that? Because they got 6,000 orders for these airplanes, 6,000 orders. So... When we skip down and talk about their delivery history, just for perspective, in 19, these are monthly deliveries, 47, and 20, 36, going down there, 20, 21, 40, 22, maybe 42, 23 through April, 37. So they want to get to 75, 65. They also said they wanted to be at 50 by the end of last year, and they were for a couple months, in November and December. But they're slipping back. You know, now they're at 37 for the first four months of the current calendar year. They have over 6,000 orders. This is a real problem. So you tell me how the supply chain is doing. If they had the ability to wave a magic wand and deliver 75 a month now, they would do it right now. If the market is there, they have 6,000 orders. So you tell me. This is the biggest program in the history of aviation ever. and they're not able to get to the rates they want to get to. They're really struggling. So you tell me how the global supply chain is doing. People say it's getting better and it's really good. I don't know. These are facts. These are numbers. And Airbus is desperate to get their numbers up. So I think it's a good proxy for how the supply chain is really struggling. Just do the math here for a second. If they were able to get to 50 a month, that's 600 a year. That's 10 years. They've got 6,000 in their backlog. So in other words, if they're at 50 a month, not 75, not 40, not 37, then they need to give somebody 10-year lead time. Want to order an H-320 NEO? Good, 10 years. That's terrible. It's hard to get more business, hard to get more orders. So they're desperate to get the rates up to 75, to 65, 75, and they're struggling. You know, they're struggling. Do I think they'll get there? Absolutely, I think they'll get there. In 26, I don't know. Maybe 26, maybe 27. I don't know when they'll get there. But my feeling is with lots of confidence they will get there. Why? Because they desperately want to get there, number one. Number two, the market is there. They have the orders. You know, the orders are there. So let's keep going. Did I miss anything in this? Oh, yeah. So this is important. Let's keep going on this slide because there's a point to this. So the A320 aircraft family offers two approved engines. One is the LEAP-1A engine, and the other one is a Pratt engine. We supply into the program using the LEAP-1A engine, so important to remember that. Now, what's the market share between the LEAP engine, the CFM engine, the Pratt engine? Sixty percent for the LEAP engine. And I believe, if I recall, there's over 11,000 orders, confirmed orders for these engines. So there's a lot of ballast, you know, a lot of inertia in that market share. So let's say Pi has a good month, CFM has a bad month. It's not going to change that 60% market share very much because there's so much balance in the order backlog already, so much inertia that the order backlog already that leads to that 60% market share. So assuming you're 60% lead market share, 75%, this is the bottom check item, 75%, A320 NEO aircraft family delivers per month. Ultimately, if you look at the stuff in blue, the language in blue at the bottom, that would translate to 1,080 LEAP engines per year. Remember that number will get back to 1,080 LEAP engines per year. This is just math. If they get to 75 and that 60% market share is maintained, it's going to be hard to move that market share very much with that huge backlog, engine backlog. This is the number. It's 10,000, sorry, 1,080, 1-0-8-0, leap engines per year. That's it. Just pure math. Not my opinion, just pure math. 1,080 leap engines per year. Keep that number in your head. So let's go on to slide 21. Goodbye to the 747, the great queen of the skies. Yeah, goodbye to the great 747 aircraft like no other. I like this photo. This is a few years ago. It's in Anchorage. You can see there's snow on the ground. But it's kind of sort of a metaphor, and maybe I shouldn't have to explain that to you. The airplane is going away. We're behind the airplane. That's a 747 through the windshield there, and it's symbolic that, okay, it's going away. So I think if you have to explain something like that, it's probably not worth it. Slide 22, let's talk about the Q4 revenues with the GA Aviation Program's 4.7 million, I think we told you when we did our Q3 earnings call, about four and a quarter, four and three quarters. So we kind of came in in that range. A total of 22.3 million for 23. It's kind of a strange number. Look at the left-hand column. The top 20 was 28.9 million, then 21, 13.2. Obviously, pandemic year, 22, 26.5 million, down to 22.3 million. What's going on here? Are the programs going down? Of course not. Programs are trying to push the programs up anyway. It's all over the place, short-term, very erratic. It makes it quite difficult to supply into these programs. It's unpredictable. The requirements for us anyway keep changing, going up and down. Not very good visibility might be a little bit of an understatement. What are we estimating for GE programs, GE evasion programs for Q1? $6 million to $6.5 million. Even though there's only about two and a half weeks left in our quarter, we're still giving this little footnote that there are risks regarding that forecast for Q1. Why don't we go on to slide 23. Now here's Park's situation, not just GE Aviation. So we already went through the Q4 number and the total number for fiscal 23, total numbers. And we have a forecast we're giving you of 14.75 to 14.75. correction, 14.75 to 15.25 million sales for Q1. And Q1 adjusted EBITDA, 3 million to 3.5 million. And again, look at the footnote, you know, because we have these risk factors. But another question you might ask is, well, you know, if our sales are going to be, let's say, around 15 million, wouldn't our EBITDA be expected to be higher? And the answer is, yeah, higher than 3 to 3.5 million. But the margins are under temporary pressure because these things we keep talking about, inflation, supply chain, staffing, and the new plant. So that's why I think that we're looking at a little bit lower than you might expect EBITDA numbers based upon the sales numbers. Why don't we go on to slide 24. Okay, this is now just really the beginning of the meaningful part of the presentation, so we took a whole half hour to get here. This is our financial outlook for PARC. energy programs, let's call it a baseline outlook, because of ongoing significant challenges related to serious supply chain disorder. I know it's a broken record. I keep talking about the same things, but these are very kind of palpable things for us. Inflation concerns and severe staffing shortages, which seem to be a global phenomenon, and the significant uncertainty as to when these challenges will moderate and abate, as a result, providing a year-over-year financial forecast would involve much speculation and therefore would not be helpful or meaningful, like I was saying regarding the H320 Neo, for example. Yeah, I think it will get to 75 per month. I'm pretty confident about that. But when? Really, that's anybody's guess. We can listen to what Airbus is saying, but that's really a target for them, and they've moved that target back because they're struggling with supply chain. They're already struggling. They're supposed to be at a 50. They're not a 50. I think I said 37 for the first four months of this year. These are real issues. These are not just things people are complaining about. So although we can talk about where we're going outlook-wise, it's hard to pin it down year over year, and I think doing that would be guesswork, and what's the point of doing that for you? It's not really meaningful or helpful. But although it is not possible to predict with any meaningful confidence the timing of the abatement of such challenges, we're hopeful that the world survives the crises it is currently facing. Sorry for the sarcasm there. I'm talking about like nuclear war or things like that. At some point in the not-too-distant future, the supply chain will reestablish some degree of order, inflation will moderate, and staffing dynamics will normalize to some degree. As a result, we are providing in the following slides a revenue outlook for our GE aviation jet engine programs and let's call it a baseline financial outlook for PARC generally. Let's go on to slide 25. What are the assumptions in doing these things and providing these outlooks? In providing the GE Aviation Program's revenue outlook and the financial outlook for PARCC, these are the following assumptions. There's not a severe or prolonged economic downturn during the outlook time frame. That doesn't mean we're not – if there's a recession, let's say this year or next year, that's not what we're talking about. We're talking about the outlook time frame. You can decide what year that is, 26, 27, I don't know, that time frame. The global supply chain returns to some level of order and normalcy. Inflation moderates, returns to historically more normal levels. Staffing dynamics return to historically more normal levels. We're assuming at some point the world will get better. Let's go on to slide 26. All right, this is where it gets interesting. G Aviation, Jet Engine Programs, Revenue Outlook. We gave you the building blocks for this analysis. I think in the last quarter when we gave you the revenue per engine unit estimates. You look at these numbers. These numbers come from our Q3 presentation. So the real question is engine unit assumptions. And these are the assumptions we're using. You can put your own numbers in if you'd like. So unfortunately, we're going to have to go through some of the footnotes as well because they are meaningful. Engine unit assumptions per year assumptions is footnote number one. Well, we already talked about this. A320, NEO aircraft assumption, there's that 1080. Remember I said keep that in your head? That 1080 is based upon information we have from Airbus. The rest of the engine unit per year assumptions are things we came up with, and we'll explain the basis of the assumptions that we came up with. I think they're relatively kind of middle of the road, maybe even conservative assumptions. Let's go on to footnote two, engine estimates based upon information from the customer. So these numbers, the engine unit, the revenue per engine unit, I should say, numbers come from our customer. That's not something we just came up with on our own. Let's see, footnote three, we already talked about that. And then in footnote three, I won't go through this, three, five, six, 6 and 7, there are assumptions in terms of whether film adhesive and lighting strike are used on these programs. And the assumptions could be a little conservative, but we're trying to be conservative. If we say we're assuming that, let's say, film adhesive is not going to be on this program or lighting strike is not going to be on the program, it doesn't mean that it won't happen. It doesn't mean that we're not working on it happening because those products have to get approved by the OEMs. They have to be certified by the OEMs. But we're trying to be conservative in this outlook. So let's go through the individual programs, Passport 20. So we're assuming 90 units per year. That was actually information that was collected. given to us by our customer. But it's, I think, relatively middle of the road. They've been doing about 40 airplanes per year or so, two engines per airplane. So I think 90 is a reasonable assumption. C919, 200, that means 100 airplanes. Well, how do we come up with that? Well, you know, Airbus for day 320. Remember the 919 is a single aisle competitor. Airbus wants to be at 75 airplanes a month. That's 900. Boeing wants to be at 50 airplanes per month. That's 600. So in the 737 MAX, Boeing wants to be at 600. Airbus wants to be at 900 for the A320neo. We're assuming 100, 100 airplanes, 200 engines. We think that's actually a relatively conservative assumption, and it really is probably driven mostly by supply chain because the Chinese control the market. And obviously the Chinese want this aircraft to be a success, and they'll control who buys the airplanes and who doesn't buy the airplanes, inside China especially. ARJ21, that's not too complicated. Last year there were 26 airplanes that were delivered, two engines per airplane, so we assume 50. GE9X, we're not giving you the details. Here we have them, but we're trying to keep this program a little more confidential, so obviously if we fill in either of these blanks, you'd be able to do the math and figure it out. We're trying not to do that. But I would say that, well, the revenue per engine unit, that's something we know from our customer. The engine unit, per your assumptions, we're being pretty conservative here. And remember, there is a design risk where this whole $6,500,000 number can go away. We add everything up, and we get to this $50,625,000 number. Just to remind you, I want to remind you, fiscal 23, the number is $22.3 million. So there's a significant amount of incremental growth from the GE Aviation Jet Engine programs. Again, we call it an outlook because we can't exactly give you what year it is. But the dates were 20. As I said, a lot of confidence. That took us to 75. The other programs, we think we're being middle of the road and maybe even conservative. This is just math after we decide what engine per year assumptions to put into the table. It's math. So like I said, a lot of incremental growth expected from the GA vision programs. Let's go on to slide 27. This is where it gets even more interesting, and we'll have to slow it down even more to cover this properly. So Park Aerospace Corp. Baseline Financial Outlook. This is for the company. It's principally based upon growth estimates of programs on which Park is sole source qualified. So we're not talking about new programs we're trying to get on. These are programs we're already sole source qualified on. So we're going to have to go through the footnotes. Let's start with the First line, base year, $54.1 million and $11.5 million. Those are just the numbers for fiscal 23, which you already have. Estimated GE program incremental sales, you look at footnote one, $28.3 million. That's just doing the math. Taking that outlook from the prior slide and taking the fiscal 23 number, and there's the incremental number, $28.3 million. Then the next item, estimated incremental sales for ADL, ADRS program, pack-free missile system, the Kratos factory, unmanned aircraft, 20 million. So we're not getting your breakdown. That's really just want to protect the confidentiality of these programs. We have the information, but we don't feel comfortable sharing that with you. So I just with you at this time making those assumptions public. But we feel those assumptions, you know, kind of middle road, maybe a little conservative. Non-GE program incremental sales. 8 million. If you read the footnote, what we're basically saying is for about last fiscal year, 23, there were about $32 million of sales for non-GE aviation programs. And we're saying by the time we get to the outlook year, it'll be 25% growth. So 32 million times 25%, that's $8 million of incremental sales for the non-GE aviation business. We think that's a fairly conservative estimate. And we get the estimated revenue outlook of $110.4 million, approximately $110 million when we get to the outlook here. Now, let's talk about EBITDA. We started with $11.5 million. Then estimated EBITDA contribution from incremental revenues. You look at the footnote, we're just saying, okay, we take $110, minus $54. Those are the incremental revenues. We multiply that by 37%, which we think is a proper contribution number based upon our historical data. financial data and performance. So we think that's a pretty reasonable middle-of-the-road number, $20.8 million. Adjustment to base year EBITDA. You can look at the footnote, but at $2.5 million, I referred to it earlier in the presentation, we're saying that we have about a $2.5 million impact in our current fiscal year. Sorry, let's say it's a 23 fiscal year. from all these things we keep talking about broken record-wise, meaning inflation, supply chain issues, staffing issues, and now, of course, the cost of new plant. So we're saying these things are going to go away long-term. Inflation, we hope, will moderate. Our pricing will catch up with inflation. Staffing shortage, we hope, will moderate. Supply chain issues, we hope, will moderate. So we're making an adjustment because we think our P&L in fiscal 23, the baseline EBITDA of $1.5 million, was burdened by these factors, which we think are going to improve significantly. We get to an estimated EBITDA outlook of $34.8 million. So that's just doing the math here. And remember, this is just an outlook. This is not a forecast. We're not taking into account any new programs that we're working on, only things we're sole source qualified on already, and taking that baseline number of $32 million and increasing it by 25%. So let's go on to slide 28. I don't think we need to go through the individual footnotes because I think we already kind of talked through them. Yeah, we did talk through them. If you have any questions about the footnotes on slide 28, let us know. But slide 29, this is an important one. This is footnote six. The above outlook analysis is not a forecast as it only considers the estimated growth of programs on which park is already sole source qualified plus that 25% growth of non-GTA program sales by the outlook year, as we discussed. The analysis does not consider any other revenue opportunities, including, for example, these are just examples. This is not an exhaustive list. These are examples. Revenue opportunities related to the AFP manufacturing project we've discussed for the last couple of quarters. The company's new film and easer product line, which we just introduced, no sales for that, zero. The Asian JV, the company is discussing now with two separate large aerospace companies. The potential new product family JV, which the company is discussing with a large aerospace company. A large aerospace program in which the company's composite materials are a finalist. A structures, assemblies, and integrations project, which the company is in serious discussions with an existing customer. A technology license arrangement under discussion with a large OEM. Several rocket and missile programs. with respect to which the company's products are under qualification. These are examples, like I said, not an exhaustive list, but I just wanted you to understand we're saying it's not a forecast because if we're doing a forecast, we would take into account these new opportunities and try to figure out, you know, okay, how many of these we're going to get, how many we're not going to get. That was not the purpose of the exercise. We wanted to give you a baseline outlook. I'll explain in a little while why we did this because originally we did this related to the dividend decisions that we made. a couple months ago. Let's go into slide 30. We're going to change gears here a little bit. We've got a rush now. We're running up against 45 minutes. So we did a news release on this, so you're probably aware of it. Our major expansion in Newton, Kansas is complete. A new facility was qualified and approved by MRAS for production April 5th. If you look at the photo here, it's a nice little group photo of people from MRAS, SDE, and PARC. This is when they visited on April 5th. to review the new plan approval and approval was actually given at the time during the visit so it was a very happy little visit we had first production run didn't fall too long after that was april 19th uh the expansion cost 20 million bucks which i think you know about it has been a long and winding road since we broke ground on a new facility on august 15 2019 but we made it job is done well done park people of course when we broke ground we didn't know that was the pandemic was around the corner so it made much it made it much more challenging We never slowed it down from our side, but obviously it was much more difficult to get the job done. You know, we have a construction crew. You remember how it was at the beginning of the pandemic. One guy, you test positive, the whole crew has to go home for two weeks, one guy on their crew, for COVID, of course. Let's go on to slide 31, another new event. We recently announced our AeroAdhere, sorry, I've got to pronounce that right, FAE 350-1 structural film adhesive product. This is a new product offering for PARC. So we announced this on May 9th just recently. It's used for use in bonding of aerospace primary and secondary structures. So film adhesive is used in the production of composite structures. The main component is the composite materials, the prefigs that we reproduce. but film adhesive, not the same quite volume, but still significant, are used in producing these composite structures. So the key thing is the customers, really all of them, I think, that buy our composite materials also use film adhesives to build, to produce the composite structures that they produce. So Arrow Adhere, FAE 350-1 is a 350 curing epoxy-based formulation. It's suitable for all these applications. And why don't we go to the last item? The introduction of our new AeroAdhere product is an important milestone for PARC as it represents a first offering in a planned major new adhesive product line with more in the works than intend to come. So this is a big deal. This is kind of a whole new area for PARC, even though it relates to construction and composite structures. We're a company that has been producing prepreg materials, composite materials or composite structures. We'll include lightning strike materials on that as well. And now we're into film adhesives, which is a big leap for PARC and a big top-line opportunity for us as well, I would think. Let's go on to slide 32. Okay, changing back to the number kind of stuff, changing gears again. And there's a reason for this. We'll get to that in a minute. Analysis of PARC cash and cash application. So let's just kind of go through this math here a little bit. $105.5 million, that was our cash that was just reported as of the end of the fiscal year. The transition tax installment payments remaining, $12.5 million. We've spoken about this many times. That's payable, let's see what those footnotes say, through 2025. Dollar per share dividend that we just declared and paid, $20.5 million. So the solution treater project for the ADL project, if we do it, That would be $6 million, the AFP project. If we do it, that's $10 million. We haven't made a final decision on those things, but I'd say it's more likely not. So we add all the things up, $49 million. We subtract $49 million for $105.5 million. We end up with $56.5 million. That's a conceptual computation, but it's basically saying, look, this is kind of how much cash we have left after we take care of all these things, $56.5 million. That's an approximation. So there's a reason for doing this, and I'll get to that in a couple slides. Let's go on to slide 33. Parks balance sheet, cash dividend history, and thoughts about capital allocation. So I've got to remind you, we have zero long-term debt. Very pleased about that. Our cash dividend. So while others cut or canceled their dividends, we maintained our $0.10 per share of regular dividends throughout the pandemic. Park has now paid 38 consecutive years of uninterrupted regular cash dividends without ever skipping a dividend or reducing the dividend amount. On February 9, 2023, our board approved 25% increase in the company's regular quarterly cash dividend going from $0.10 per quarter to $0.125 per quarter or $0.40 per year to $0.50 per year or total dollars about $8 million to $10 million per year. Well, why do we do that? So let's go back to slide 27, because that's kind of why we did the announce that we did in slide 27 originally. This was done with something we reviewed with the board, which, you know, a little bit more detail provided, of course. And when we saw that our outlook for EBITDA on our forecast was about $35 million, we felt, very comfortable increasing our regular dividend to about $10 million, from $8 million to $10 million per year. And, you know, one could have taken a position or argued that we could have done more, but since Park tends to be a conservative company, we just said, okay, we'll go to that $10 million or $0.125 per quarter of regular dividend. We always could do more later if we want to. But seeing that this is really why we originally did the analysis on slide 27, was for the board to consider whether we should be changing our dividend policy. Now, at the time, what we reviewed with the board was more detailed than this, but this was basically the kind of analysis that the board used to make the decision. We've had a long run with a regular dividend back to slide 33 that I intend to disrupt that run. In other words, the point is that we feel very comfortable increasing the dividend that we're not going to need to reverse that at some point. Let's go on to slide 34. Again, just continuing with parks balance sheet, et cetera. So on February 9th, same date, Parks Board also declared special dividends of $1 per share, total amount of approximately $20 million, which was already paid on April 6th, so that money is gone. Why did we do that? Now let's go to slide 32 because there's a reason for slide 32 as well. This is the analysis that we reviewed. when we made the decision, the board made the decision to pay the special dividend. And we felt that, actually spent a lot of time in this, and we had advice from outsiders, investment bankers, did a very careful evaluation. But we felt that this number, this kind of concept number, 56 million, let's say, is a proper number for PAR. We felt comfortable with the 20 million or $20.5 million, $1 per share dividend. And that was based on a pretty serious thoughtful analysis, I must say. What about M&A? So good question. We're not giving up on M&A. We're still looking at M&A. But I think we've concluded that M&A is probably a less likely opportunity for the expenditure of our cash than maybe we originally thought. Why is that? Because there's two types of things we're looking at. One is something comes to us. It's usually an auction that's being handled by an investment banker. We've looked at a number of these things, and the prices that these companies are sold for are significantly more than we would be willing to offer a bid. And we don't have any regrets about that. We think the world's insane, and we're sane. We feel fine. We don't have any regrets, fine about the valuations we came up with. But, you know, the outside world has a different opinion, and we're not going to chase those kind of values. So that's a little bit of an issue with the of the companies that are auctioned. Of course, when companies are auctioned, they're not exactly what we want anyway. The company that's for sale is brought to our attention by an investment banker. The other thing we've been looking at is companies we target, we go after, that are not necessarily for sale. That is a little bit of a different kind of problem, which is that if the owner isn't willing to sell or isn't willing to sell at the price that we think makes sense, then it's not going to necessarily happen. So we're not giving up at M&A. We're just looking at another opportunity now in the last couple of weeks that we're just starting to look at. But I guess we're a little less optimistic that we're going to have an outlet for our cash with M&A. If we find something, would we be willing to finance? Sure, we'd be willing to finance if it makes sense for PARC. So the good news, though, and this is, I think, the main point that we should make, is that even though we may not be investing significantly in companies via acquisition. Maybe we will, but may not. There are many opportunities, very attractive opportunities that are coming our way to invest in. Some of those were listed on that footnote six, the slide regarding our outlook. Those opportunities that we're saying we're not taking into account in the outlook computation and many more. These things are coming our way, actually, And why? Is it just luck? I don't know. Maybe it's because we paid a lot of dues and sacrificed a lot and overcame much so that we're in a position now, we've earned that right, to have these opportunities presented to us. And what I would say is the ROI on these opportunities for, let's go to internal investment on programs or projects, are usually much, much, much more attractive than the potential ROIs on the acquisitions by orders of magnitude sometimes. So that's the good news is that we're not out of opportunities. That's quite the opposite, actually. But I think our focus is going to be on a different type of opportunity at this point. The $56.5 million number, we're comfortable with that number. We think it's okay. And we think that we'll be able to take advantage of some of these other opportunities. And like I said, if we feel we need to finance an opportunity, we'll be willing to consider that as well. So just continuing back on slide 34, Park has now paid $583 million, over $28 per share, in cash dividends since the beginning of 2005. Our thoughts about cash and capital allocation. No bucks, no Buck Rogers. That's a Tom Wolfe thing from The Right Stuff. So our version of that is no capital, no capital allocation. Somewhere along the way, someone has to generate the capital or there will be no capital to allocate. So there's a lot of talk about capital allocation, and it's all fine. It's good. I'm not criticizing it. But it seems what's missing sometimes is, well, you have to generate the capital. Somebody has to do that. And that's not something that's easily done by, you know, discussion at a business school. That requires, as far as we're concerned, hard work and sacrifice. Let's go on to slide 35. How about PARC? How is PARC done in terms of generating capital? Well, how are we done? The company was started by two guys in a garage in Woodside, Queens in 1954, which is a few bucks they left over from war duty. Basically, they started with no money. Nobody ever gave us anything, nothing I can remember anyway, nothing special, but we've paid that $583 million in cash dividends since 2005, so that somebody at Park must have figured out how to generate capital over the years. No capital, no capital allocation. So the fact that we generate the capital makes the discussion about capital allocation meaningful and relevant. If we hadn't generated capital, nothing to talk about. So let's not forget that part of the equation. Slide 36, Park family, culture, each strategy for breakfast. That's a Peter Drucker thing. So at Park, we have a strategy too. We're not downplaying strategy, but it is our Park family culture strategy. which makes us strong and allows us to endure. How do we generate capital at PARC? How do we generate lasting value at PARC? It's through dedication, through sacrifice, through perseverance. I'm not sure these things are really taught in these elite business schools. The capital allocation part of it might be taught, but how do you generate capital? This is how we generate capital anyway. You have to judge whether we've been successful. I think we have been. But that's my opinion. Because of our ongoing staffing shortages, our film line and tape line people have been working 60 or more hours per week, week in and week out for over a year now. That's not only film and tape, but we're focusing on film and tape at this point. This is how we generate capital in the park. Let's go on to slide 37. So why do our people do such things? Why do they want to work 60 plus hours per week, week in and week out? How does that work? Five days, 12 hours? So there are two shifts, two crews, day and night. So we got pretty much 24-5 coverage on those two machines, critical machines, the hotmail machines, film and tape. So maybe why do people do such things? What, because we're nice people or something like that? We say nice things? Maybe because actions speak louder than words. Do you know that came from Abraham Lincoln? I didn't know that. I looked it up, and apparently he's the one who first coined that phrase. It's a good one. So when we were just what everybody's laying off their employees at the, you know, at the beginning of the pandemic, remember that in some cases by the thousands, we park laid off nobody. We kept all of our precious park family people, even though we were told we were crazy to do so. So, you know, we're in aerospace. Remember the, the planes were flying with just all proud pictures of it. One or two, three people, most of them were just parked and not flying at all. So, The industry was in terrible shape. I mean, it just was almost collapsed, you know, the aircraft industry. But more than that was the fact that there was this great uncertainty about what was going to happen. We all remember that. People talked about Armageddon, the end of days. So, yeah, things are really bad, but what was going to happen for the future? And, you know, a lot of people gave in to fear, and I don't blame them. and they dramatically reduced costs, laid off lots and lots of people. There's this thing George Patton said, don't take counsel of your fears. I think that's the correct quote. But we didn't take counsel of our fears, and we didn't lay anybody off. Somehow we decided we're going to stay with our people, and that's the last thing that we go. And remember the vaccine mandates where we were being pressured, pretty heavily pressured to fire our people, dare to defy the mandates? What did we tell our people? We said, no, we're not going to fire you. You know, it's up to you whether you get vaccinated or not. We didn't tell people that, you know, they need to get that. We didn't tell people not to get vaccinated. We're against vaccines. But we told people, no, we're not going to do it. As a matter of fact, we said we're not going to fire you. As a matter of fact, we said in writing over our dead body just to make sure that they understood we're not fooling around. And I meant that. I meant that literally over our dead body. If you want to have a culture which has any real meaning of power, You better be willing to live and die by it. You know, people have cultures. They have nice PowerPoints that some PR firm does to present a culture, but it's meaningless unless you're really willing to commit everything you've got to it, in my opinion. Otherwise, it's a waste of time and it's silly. Our people remember those things. I suspect they do. And actions speak louder than words. So that may be why our people are so dedicated, at least, you know, an example as to why our people are so dedicated, because we've demonstrated with actions, not words, how important they are to us. and how dedicated we are to them. Let's go on to our last slide. We're just finishing up within an hour. Slide 38. If you want your people to love your company, you better love them, and it better be true love also. You can't fake love. Our people are family, and we don't turn our backs on family. Peter was right. So here's a picture of our dedicated film line and tape line crews. These are wonderful, wonderful people. I really was very pleased when I asked Corey to take a picture of these guys and gals during shift change. That's the only time we can get most of them in one photo. It's really an honor for me to be able to work with these people. And actually, I was a little emotional. I got a little emotional when I saw this picture because they look so happy, you know, and they're working so hard and there are so many nice smiles on their faces. So that meant a lot to me. I don't know if it means anything to anybody else, but I just wanted you to know it meant a lot to me. So, okay, thank you very much. We've got one hour and one minute. We're done with our presentation. So, operator, if there are any questions, at this point, we'd be happy to take them.
spk04: Thank you, sir. We will now be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would 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 keys. One moment, please, while we poll for questions. And the first question comes from the line of Nick Riposkella with NR Management. Please proceed with your question.
spk02: Good morning, Brian and the team. Can you hear me okay?
spk01: Yeah, I hear you fine, Nick. Thank you.
spk02: Great, great, great. Just a couple of questions. If you could just give a little update in your thoughts on what's going on with China and the COMAC program. I really haven't heard much in the press about that lately. Secondly, you've again laid out how Park is really a U.S.-based growth manufacturing concern. That's the way I look at it. I look at it as a growth stock. um, based on the outlook. And, um, so if we were to, you know, have some stutter steps here, would you still have an appetite for share repurchase if, you know, Mr. Market became silly at some point and, uh, the equity were to, you know, become depressed? Uh, and then finally, and this may be a stupid question, if there is, do you have any thoughts on the, uh, removal from the, uh, S&P index? I know that's out of your, uh, you know, controlled. If you have any, if you have any thoughts on that, it'd be appreciated. Thank you so much.
spk01: Okay. Thanks, Nick. Uh, Comac. Yeah. You know, it's funny that the Chinese are not as transparent, a little opaque and we, we follow news. You probably see the same things we see and we haven't seen much in terms of updates to the programs. The programs are progressing though, from our perspective, in terms of, uh, material requirements, the, um, AirJet 21, that's at this point really an aircraft that's in full production. I don't know if it'll ramp up to higher rates. As I said last year, I think they did 26 airplanes. So it's a small program. It's a little meaningful program for us. And it's also targeted for approval of our LSB product, which we'd be very happy about. The 919, that's obviously the big one for the Chinese. It's a real prestige program. They're going up against the 737 and h320 as you know uh we'll have to see what happens um i haven't heard any recent uh news though nick although i would just go back to what i've said numerous times which is that this is a big big big prestige program for the chinese and my bet is that they're going to do everything they can to make it successful um the uh let's see you had a comment about our being a growth stock and uh Let's see, I don't remember what the question was there, but you can remind me. But buyback, yes, but buybacks, yeah, so is the market going to make us another offer we can't refuse? Yeah, we're very open to doing buybacks, and I guess maybe you're tying the growth outlook to buybacks. Maybe that was the question. Yeah, so actually something that we are thinking about, something on our radar screen today, considering especially, like I think we were suggesting, the outlook. Is our company valued properly? Probably not. And that actually ties into the removal from the S&P, the small cap index. We were given no notice about it. You know, you read about it probably the same time we read about it. It was very disappointing. Somebody made a comment, which I didn't really appreciate too much, that, well, we were deleted from the S&P index, small cap index, because our market cap hadn't increased as much as it needed to or hadn't increased very much or something to that effect. And I thought, well, okay, of the companies in the S&P small cap index, how many pay cash dividends? Okay, second question. Of those who pay, which my guess is not too many. Small companies generally don't pay cash dividends. Second question, are those companies in a small cap, S&P small cap index, which do pay cash dividends, how many have paid $28 of cash dividends per share since 2005? Because obviously that has a big impact upon the value of the company. So we're very disappointed. We had increased our dividends. regular dividend, and that seemed to drive the stock price up quite a bit to, I think, the equivalent of high 15s. I'm taking into account the $1 special dividend, maybe 1580 or something like that. Then the deletion occurred. We had no notice about it, and the stock went back down to where it was. So we have no control over it. It's just disappointing to us. what we're going to say is not fair of course not we've been in touch with S&P they've been very polite and very nice and you know they're not very transparent about how they go through these decisions but obviously it wasn't what we wanted but we just have to keep going and you know we'll see what happens I don't know if we have a chance to get back in the index but that's not really our main objective our main objective is to realize the goals for PARC and Nick did I miss anything did I cover all those questions or
spk02: Yeah, no, that's pretty good. Thank you so much. I appreciate it. And keep up the good work.
spk01: Thank you very much, Nick.
spk04: And the next question comes from the line of Matt Spiegel with GWK Investments. Please proceed with your question. Excuse me. The next question comes from the line of Brian Glenn with Olcott Square Investment Partners. Please proceed with your question.
spk03: Hey, Brian. Thanks for the always very thorough walkthrough. you doing brian good um good i have a couple questions so the the first is on the mras which i know was three five and five years and so are are you able um to discuss and you probably can't go into detail but to discuss the mechanisms for the for the reprice which which i think correct me if i'm wrong would be 2025
spk01: That's a cast in concrete. We have a price increase. All of our pricing goes up beginning of calendar 2025. That was part of our 10-year LTA. So that's kind of built in. Now, when we did the 10-year LTA, we were using an inflation assumption of maybe 3%. The raw materials... We have LTAs from our suppliers on the raw materials, except for one where there's a kind of a risk sharing arrangement for one of the raw material components. But it's really a non-raw material area of our cost that, you know, we are at risk for. We assume about 3% inflation year over year. And obviously that has not been the case in the last like 12 months or so. So that's where we have the risk and the price increase that goes into effect. January of 2025, use that 3% assumption. It's not, I just want to be clear, it's not an index. In other words, it doesn't change based upon what happens with inflation. I'm just saying when MRS and PARC negotiated the agreement, we agreed that we would assume a 3% inflation year over year in order to come up with a pricing.
spk03: Okay. Yeah, thanks for that. I appreciate it and understood. And then my second question, it's twofold, I guess. There's a lot of talk on the impressive dividend record and it certainly is impressive and large and respectable and appreciated. Does the board, to the extent you can share, does the board have discussions around total shareholder return at all? Or is it mainly just around dividends and then Related to that, is there anything, I know a lot of people have asked over the last few quarters and years about dividends versus buybacks. Is there any other factors that would influence that decision related to you or the board's preference for amount of shares outstanding, trading liquidity, or anything like that, or ownership interest that may bias you guys one way or the other, or is Is that just not a factor?
spk01: So, Brian, it's all a factor, you know, and maybe I didn't explain it that well, but when we went through the analysis to where we decided to do the $1 dividend and also the increase in our dividend, we had discussions about all those things, total show return, buybacks, you know, M&A, investment, using our cash for internal investment, So I wouldn't, you know, there's nothing that's off the table. Everything is being considered and everything is being evaluated in our discussions. All these things are considered. So if I implied that it's only a one-track thing, you know, only about dividends, I didn't mean to do that. Probably the reason we focus on dividends in the presentation is because we have the recent increase in the regular dividend and also the special dividend. Understood. Yeah, Brian, let me just say that. I just want to say again. So I think the board is pretty sophisticated about this stuff, and if there's some belief that's not, I think that's not correct at all. But in addition to that, we do get regular advice from outside experts, you know, investment banking people that are, you know, the tops of their firms, like CEO levels, president levels at their firms. So, yeah. I think we're well advised and I think we're well aware of all the different factors that you mentioned in terms of total shareholder return.
spk03: Yeah, understood. I mean, I think if, and this is just me, but if you look at your outlook and maybe that's hit one day, maybe it's not. I understand it's not a forecast and there's a lot of levers there. It seems to me that there's substantial return that could be realized over time by retiring a share and possibly higher than the return on assets or return on invested capital rate of the firm historically. And I know that's changing with the footprint and the new plant coming online and some of the internal projects. But that's just my own observation and, you know, just something that I believe to be true. But I do appreciate you doing this walkthrough. It's always appreciated. And I find the level of detail you guys put into this presentation, extremely helpful and appreciated.
spk01: Okay. Well, thank you very much for your input, Brian. Thanks again.
spk00: Thank you.
spk04: At this time, there are no further questions, and I would like to turn the floor back over to Brian Shore for any closing comments.
spk01: Okay. This is Brian again. Thank you very much for everybody, very much for listening again. These calls are – I try to – Make them quick, and I try to rush through these things a little bit, but I end up going for more than an hour. So I appreciate you hanging in there. And feel free to, if you have any follow-up questions, feel free to give us a call, and feel free to give Matt or me a call. Otherwise, we'll be talking pretty soon because our first quarter report is, I think, the beginning of July. Thanks, and have a great day. Bye.
spk04: Thank you, everyone. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
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