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spk37: Good afternoon. My name is Camilla and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp third quarter fiscal year 2024 earnings release conference call and investor presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. At this time, I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.
spk28: Thank you, Operator. This is Brian. Welcome, everybody. And I want to introduce Matt, of course. He's with us, our CFO, as usual, Matt Farabaugh. And also we'd like to take this opportunity to wish you and your families a very happy new year. All the best to you in 2024 it is, right? Yep. We just announced our Q3 earnings, I guess maybe about 45 minutes ago. So you want to pick that up. And also in the earnings announcement, there's instructions as to how you would access the presentation that we're about to go through. You want to do that as well. The presentation is pretty long. Sorry about that. I really was thinking I was going to, this one, I'm going to make it shorter and end up being longer. It's hard for us, or at least for me, because it just seems like sometimes there are important things to cover. We don't do the sound bites, you know, we don't hire IR firms to do a little clever, you know, kind of slick things, and I don't know why you'd want that anyway, because I would think you'd want to hear from management, so we're not as polished, it takes a little bit longer. It'd probably take about 45 minutes or so to go through the presentation, so just a be advised. We might skim through some of the items that we've gone through previously. There are some items in this presentation which were in the Q2 presentation as well, so that might help us a little bit. Before we get started, I just really want to give a shout out to Donna because Q3 is a bear for us because our holidays are kind of a mess. Not just the presentation, we're closing our financials, so Matt as well. But Donna, you know, helps me do all the PowerPoint stuff. I'm not even dangerous in PowerPoint. I can't do it at all. So every third quarter, you know, she's working through holidays. Before we get started, note again, it's our 70th year in business. It'll be our 70th anniversary is March 31. So I guess, what is that, a couple months off? It'll be 70 years if we make it that far. Why don't we get going? Slide two is our forward-looking disclaimer. Language, so we're not going to go through it. Please call us if you have any questions or let us know if you have any questions. Slide three, table of contents. First thing is the investor presentation. Appendix one, supplementary financial info, which we're not going to go through either, but if you have any questions about it, please let us know. Let's go on to slide four, take a little bit longer. So Q3, let's go through it. Sales, $11 million. Why don't we compare things to Q2, $11 million, $639 million. So that's a fairly low number in terms of sales, even lower than Q2, which was off. And I think you probably have a good understanding of Q2, and we'll go through the explanation of Q3 as well. And look at the margins I highlighted. We highlighted the margins, both the gross margins and EBITDA margins. So you can see the comparisons to Q2, which are not really favorable, but As I think we tell you a lot, we don't like it when we see our gross margins below 30%, so they're certainly below 30% this quarter, and our EBITDA margins are not really that desirable for us anyway either. Our observations and thoughts about our Q3, so what's going on here? Well, the MRAS inventory burned down, which we talked about at great length in our Q2 call, that continued through Q3, and we predicted when we did our Q2 call, we told you, we predicted that. Is that MRAS inventory burndown expected to continue into Q4? No, it's not. It's over, and we'll get into that in the presentation. But there's no more burndown. We will discuss the MRAS inventory burndown in greater detail throughout the presentation. Let's go to slide five. Let's talk about the non-G aviation sales we have. We talk a lot about G aviation. Non-G aviation sales were only 7.5 million in Q3. And that compared to $9.4 million in both Q1 and Q2, so that was off as well. So although there almost always will be some degree of quarter-to-quarter variability in our business, the trend is actually quite good for non-GA evasion sales, so we're feeling pretty encouraged about that. But what is the reason for or are the reasons for the quarter-to-quarter variability? There are numerous reasons, but for numerous reasons, the programs we're on who will be active in one quarter and may be inactive in another quarter, and we really have no control over that. There's very little we can do to control the timing of when programs that we are on will be active or inactive, and it would really be a waste of our time to even try to do that. It would exercise in futility, as we say here. But at PARCC, the key thing is we focus our energy and efforts on getting on new programs, which we believe will be supportive of our long-term objectives, rather than attempting to try to control the timing of programs already on. So let's keep going. Slide six. But nevertheless, this quarter-to-quarter variability does come with less than optimal visibility often. And it does require us, in part, to be very agile and fast on our feet with our supply chain, with our inventory, and our production management activities. So were there any new obstacles to completing sales in Q3? Yeah, there were, actually, and we'll get to that in a minute. But let's not talk about the bottom line. We'll talk about the top line. Why were the margins in Q3 lower than Q2? And we already showed you the comparisons. Well, there's a few reasons. There's a less favorable sales mix in Q3 compared to Q2. Q2, the sales mix actually was quite good. Q3, not quite as good. But as explained above, we have little to no control over which programs are active and which programs are inactive on a quarter-to-quarter basis. That's kind of rolling the dice a little bit if you look at it short-term. Will the higher margin programs be active in a quarter or less active? That we have almost no control over. Again, our objective is to get on more programs. The ones that we think are good programs, the better margin programs, and the timing is up to the customer or God or something outside of our control. The second item was lower sales. We talked about it in Q2. That affects our bottom line in Q2. Lower sales in Q3 compared to Q2. That affects our bottom line, of course. And here's a big one. Even though we fully anticipated that Q3 sales were going to be light compared to Q2, we intentionally ramped up our costs in Q3 to meet the reduction requirements of expected key program ramp-ups. So that was something we decided that was intentional, and we'll talk about that number again throughout the presentation. So why don't we go on to slide seven. Yeah, we saw that freight train coming. That's an analogy we use in our Q2 presentation. The freight train coming, meaning the program ramp-ups, we wanted to make sure we were ready. Although ramping up our costs took some conviction and maybe some guts, a little bit anyway. You know, it's hard when you see, you know, it's not going to be a good quarter sales-wise to ramp up your costs. But it turns out, we didn't know for sure, no guarantee, but we clearly were right with the benefit of hindsight to do what we did in ramping up our costs in Q3, and we'll explain that as we go through the presentation. So... It was a good move on our part, I would say, to do what we did. Other considerations related to Q3, how things are going with supply chain staffing, freight disruption. We talk about this a lot. You might be tired of hearing about it, but we're sometimes tired of dealing with it. Supply chain staffing challenges continue, but they seem to be improving to some extent. Or maybe there's more... that we have become more effective with dealing with them. Now, I just want to point out, we're not talking about supply chain issues for the whole industry. We're talking about our supply chain. The whole industry we'll talk about later on. That's probably more of a factor for us anyway in terms of the opportunity industry and how they're affected by supply chain constraints. International freight, well, that's a little bit of a different story. There's that war in the Middle East. which occurred after the end of Q2, I guess during the first part of Q3, which we didn't see coming. But it's causing serious disruption and challenges for international freight, disrupting, sorry, slide eight, disrupting shipments to customers in the Mideast and Asia. Yeah, we've got customers in Turkey and Israel, important customers. So you can only imagine what kind of chaos that is. And then we also have customers in Asia where, There's not a war in Asia, not yet anyway. Hopefully it'll stay that way. But nevertheless, the sea freight goes through the Middle East. I guess now it's going through the hornets of Africa. It's way out of the way. So that's not a lot of fun. Total misshipments in Q3, about 560,000. I don't have it in front of me, but I think it was only about 220 in Q2. So in other words, Q2, we're really getting much better, but we have a big setback in Q3, and that's almost all related to international freight disruptions. So there you go. Also, our margins continue to be affected by inflation. I know inflation is supposed to be all gone, but I don't buy that. And cost-related operating are recently commissioned, new plant in Newton, Kansas. This is all planned and expected, but obviously planned, You don't turn a plant on and you're at full capacity. It's not how it works. Let's go on to slide nine. Okay, this is our historical fiscal year results. And for perspective mostly, let's talk about it a minute. Normally we don't spend much time on this one. Look at the sales in 17, 18, 19, 20. It kept going up like $10 million, $31, $40, $51, $60, really not.
spk27: And then what happened was this little thing called a pandemic.
spk28: So sales were really badly affected in 21. In 22, 23, and 24, if you look at our forecast on slide 36, 24 is going to be our forecast is something like 23, like $55 million top line, $11.5 million EBITDA. So we got three years where we just haven't been able to break out. The pandemic, the disease part is mostly over, but Boy, did we screw up the global economy, supply chain, staffing. We have supposedly full employment, but so many people left the workforce. I don't know how that problem gets solved so easily. You probably know better than I do. But at least from my perspective, it seems like a problem that may not get totally solved so easily. But anyway, if you look at our top line numbers, you can kind of see the pattern there. Now, we're hoping, and we have reason to hope, that we're going to start to move that, you know, we're going to start to have that growth dynamic kick in again starting in this fiscal year, you know, return to the growth dynamic. But let's go ahead and let's talk about, let's go on to slide 10. Okay, quickly in this one, we always cover our balance sheet and dividend stuff. So we got zero long-term debt, $74 million of cash we reported in But don't forget, there's $9.3 million of remaining transition tax installment payments payable through June 25. That relates to repatriation tax. I think it was based on the Trump tax law, which was very good for Park. But nevertheless, we have some installment payments. So, you know, you can think about how you like. We kind of think about that as almost like debt, like we owe that money. So when we think of our cash, we think, well, you know, we still got to give $9.3 million of is these transition tax installment payments to the government. That's in addition to our regular tax payments, which we're not talking about. Dividend, yeah, you know about our dividend. We've paid a lot of dividends. Paying for eight years, $588 million since 2005. And like I always like to say, that's a hell of a lot of money for a little company like Park. I want to slide 11. This is just kind of a reminder, as you know, On May 23, 2022, the board authorized a buyback of 1.5 million shares. We purchased about 221,000 shares so far. It looks like we have about, what is it, 1,279,000 shares still available to be purchased under the authorization. We're not saying whether we're going to buy stock or not, but we just want to remind you that the authorization is out there just so you remember that. Let's go on to slide 12. Okay, every quarter we tell you about our top five. This is a slide that Donna prepares. We do a little nice picture of, you know, one of the programs that these customers run. So they're a contractor for AirJet, and AirJet relates to the Pac-3 missile. We talk about that a lot. Aerospheres, they're a contractor for Israeli aircraft. and that relates to the G280. So that's a Gulfstream airplane, but Gulfstream has some contract with Israeli Aircraft, under which Israeli Aircraft produces the G280 airplane. Kratos, you know all about Kratos. We talk about it almost, I think, every quarter, featuring this Mako unmanned tactical drone. Middle River, yeah, every quarter, of course. 747-8, that's, I think, our favorite airplane. And then Nordam, that's the global 7500. They make some components for the engines for this global 7500 with our materials. Let's go on to the next slide, slide 13. Our pie charts, I always like these. I don't know if they are useful to you, but I kind of think that Tally's, you know, had messages in them. And if you look at the first nine months of this year, you'd say you did a commercial a little bit off as compared to the prior two years. And that would be based upon what? That would be that burndown. That's causing commercial to be a little bit like in the fiscal 2024 first nine-month pie chart. Let's go on to slide 14. So Park Loves Niche Military Aerospace Programs. This is Elena's project every quarter to come up with some kind of fun, interesting, and cool examples of military programs to run. The pie chart's interesting. Let's talk about that for a second. Rocket nozzles, drones, structures, those, sorry, radomes, those are niche markets for us. But even the structures we consider to be a niche market. Quickly, the SpaceX Falcon 9 launcher with Dragon spacecraft materials and ablatives. The Northrop Grumman E2D, that's parts and materials. And both the Black Hawk and the Lockheed G5, two very different kinds of aircraft, but those are multiple materials. And the MK-56 vertical launch system, that's for the Navy, and those are ablated materials. Let's go on to slide 15. So let's talk a little bit about trends in the aerospace industry. Commercial aerospace markets, domestic air travel report fully recovered. That's good news for a single aisle like the A320neo aircraft. International travel is reported to be approaching pre-pandemic levels. Also very good news for long-haul widebodies like the Boeing 777XC. I'm a little biased because I keep talking about programs we're on. Not surprisingly, demand for commercial aircraft is very high. Supply chain and labor shortage challenges continue to be the biggest headwind for the commercial aircraft industry. But there are recent reports of supply chain stabilization and improvement. But I'll tell you what, we're not going to believe events. We'll see about that. You know, it seems like it's inconsistent. You know, some places may be better, some places maybe not better. But notwithstanding these ongoing supply chain constraints, many now believe that 2024 will be the year the commercial aircraft industry breaks out and ramps up production in earnest. You know, at the beginning of every year, calendar year, there's always a prognosticator, isn't there? crews and stuff that have reports. But I've read a number of them recently, you know, aerospace analyst types that are saying that, you know, this year may be the year that commercial aircraft industry really breaks out and kind of gets past the supply chain constraints. We'll see about that. But I think there might be some reason to be optimistic. Let's talk about that. Let's go to slide 16. The recent impressive ramp up of A320neo family aircraft deliveries. Now, this is not prognostication. These are facts. we'll get to that in slide 21 and 22, regarding that delivery ramp-up, is supportive of that view. Now, should we use the 8 through 20 NEO family aircraft deliveries as a proxy for a commercial aircraft industry? I don't know, but considering that that program is expected to be the largest commercial aircraft program in the history of the universe, maybe we should consider using it as a proxy. Now, military markets, proxy for the for the industry, you know, breaking out, let's call it, the commercial aircraft industry. Military markets, so the global demand for military and defense hardware, including missile, missile defense systems, such as a factory missile. Again, we kind of bias, we talk about the programs we're on, quite high and elevated by the wars, extreme tensions in the globe. Let's go on to slide 17. Also, high level of interest in unmanned and potentially autonomous systems, such as the Kratos, Valkyrie.
spk14: What's going on here?
spk28: I'm not an expert, but I'm just wondering. You've got missiles, missile offense, drones. Maybe this is to avoid boots on the ground so we could do our wars without getting people in the middle of them. I know that's kind of a cynical way to look at it, but you probably have a more enlightened opinion than I do. The markets for military and defense hardware are also affected and in some cases constrained by international political and budgetary factors. We read about that stuff every day. And in some cases, supply chain and labor constraints continue to limit the ability of military defense OEMs to meet the demand, the market demand for the hardware. A little picture of the Valkyrie here, which is nice. And the last item on this slide, we're on slide 17. December 17, 2023 was the 120th anniversary of the Wright Brothers' first powered flight. So happy anniversary, aerospace industry. Let's go on to slide 18. Okay, you're familiar with this slide if you've listened to other presentations. We go through this every quarter. And this just kind of gives you context because GE aviation programs are really important and we talk about them. This is just background. We're not going to go through the programs. We have a firm pricing LTA through 2029 with Middle River Air Structure Systems, a sub of ST Engineering Aerospace. What is that? I don't get that. Because all these programs are GE aviation programs. So what's going on here? Well, What's going on here is when we got in these programs, Middle River, MRAS, which is old Martin and Glenn Martin Company in Baltimore, you know, and then Lockheed Martin. Anyway, they were part of GA Aviation. So when we got in these programs, they were part of GA Aviation. I remember about four or five years ago, I'm not sure, I remember GA Aviation sold MRAS to SD Engineering Aerospace, which is a large Singapore aerospace company, but we're still supplying it to those companies. G-Aviation programs. And actually, the redundant factory, that was an agreement we reached with G-Aviation to build that redundant factory. They wanted their redundancy because they're kind of betting a farm with us being sole source on these programs. So I won't go through the programs. If you have any questions about them, let me know. Let's go on to slide 19, the first two items. Again, programs, we're not going to go through them. Just let us know if you have any questions. Third bullet arrow item, MRES-QAL, three PARC proprietary film adhesive formulation product forms in progress. That's new. That's interesting and pretty great for PARC. PARC MRES LTA through 2029 recently amended to include the three PARC film adhesive product forms for composite bond and metal bond. That's really great for PARC. Life of program agreement requested by MRES. Yeah, and SDE, they both said, yeah, 29 is nice, but we need a commitment for longer than that. So the agreement is in progress. What's that agreement worth to PARCC? I don't know. You tell me. You might, what is that? Is it slide 38 that has the, let me see if that's the slide. No, 30, yeah, 38 has the analysis of the revenues, annual revenues for the GE aviation programs. LIFER program, I don't know. You tell me, you know, 2045, 2050. These airplane programs are just starting. We're so lucky, so fortunate. The programs are on. They're new programs. They're going to go a long, long, long, long time. Very lucky. The 747, that program ended, so that's sad. But the other programs are on now. They have a long way to run. Slide 20. Okay, we're going to go through some of the programs. We'll try to skip through some of this or skim over it because we covered every quarter. Let's cover the high points. First of all, A320neo. That's the big dog. That's the big one. That includes this whole A320neo family. Huge backlog, huge, 6,750 airplanes. That's a backlog. That doesn't include all the airplanes that have been shipped. Airbus continues to say they're going to be at 75 per month production and deliveries in 2026. Are they going to make it there? Let's go on to slide 21. Let's think about that. So how is Airbus doing so far with their planned aircraft? A320 NEO family aircraft production ramp-up. That's pretty well, actually. According to reports, 73 deliveries in December. Well, that's a lot. An average of 57 per month in Q4 of 23. That's a lot. And 563 total in calendar year 23. That's a lot. That's an average of 47 per month in calendar year 23. Let's get some perspectives. What's the history? 18, you can see what's going on here. They're ramping up in the pandemic. Let's talk about, what do we talk about per month? So 18, 32 per month, 19, 47 per month, and then oops, so we got the pandemic, 20, 36, 21, 38, and 22, 43. Everybody said they wanted to maintain 40 through the pandemic. They almost got there, a little bit light in 2021, but they did keep some production going good for them. Now, let's take a look at something else. So it was 563 in 23. 561 was their big year before, sorry, 19, with 561 was their big year before the pandemic. So we just eked out in 23, 561, which is a big year. So that kind of says, you know, things are getting past the pandemic. Now we're standing with supply chain stuff and everything else that's holding things back. And the other thing you want to look at is that, It wasn't level at 47 per month through calendar 23. 73 in December, 57 in the last quarter. So I would say, yeah, during the year, things are moving up. And we'll have to see how things work out as we go forward. I think there's actually a comment about that. Let's go on to slide 22. So for the first in 23, calendar 23, for the first time since the beginning of the pandemic, Airbus was able to return to those A320neo family aircraft production and delivery rates to those pre-pandemic rates. What do you call it? Italics, I guess? A very key milestone and accomplishment for Airbus. Good for them. Now, this is what I was thinking about. There could be monthly ups and downs. There will be monthly ups and downs for A320neo aircraft family deliveries. But it's quite apparent, at least to me anyway, that the ramp is real and not going away. You know, I wouldn't be surprised in the first couple of months of the 24. I don't know. I don't have any information. I'm just speculating. It could be a little light, but that's how it often is because they push a lot of airplanes out at the end of the year. Clearly, based upon the huge backlog, though, Airbus would be producing these aircraft at a rate of 75 per month already, if not for supply chain constraints. And by the way, just FYI, According to reports, Airbus booked 257 new orders in December of 23. That's a lot of new orders. They booked an unheard of 1,693 new A320 family aircraft orders in 23. Those are just incredible numbers. We're so fortunate to be on that program. Just luck, really, I guess. Slide 23. What about those engines, though, for the A320, Neil? Boy, we lead a charred life, I'll tell you. So remember that there are two approved engines for the A320neo, the LEAP 1A and the Pratt 1100G GTF engine. And we only supply into the LEAP 1A, not the Pratt. This is, you know, I was talking about Elite of Charm Life. Because the LEAP 1A market share has been hovering about 60% for the last, you know, couple of years. If you go on to slide 24, then what happened? That all changed. LEAP 1A had broken out as a clear market share winner for the 8 through 20. According to this December 23 edition of Aeroenginews, that's our Bible for, you know, a huge amount of data in this monthly publication. CFM, Leaf 1A market share, firm orders, 8 through 20 new aircraft, only 65.6% as of October 31. Well, how the heck did that happen? You know, the thing is, there's just so much ballast in that market share with over 12,000 firm engine orders between the two engines how you you know and you were 60 percent how the heck do you get to 65 and 0.6 percent in just a couple months it's incredible um at the delivery rate of uh 75 h3 neo um family aircraft month that 65.6 percent market share translates into 1181 leap on a engines per year what's it worth to park well we'll talk about it in slide 38 we'll get there um Slide 25, so there are also currently 8,150 firm LEAP 1A engine orders. That's a lot of engines. What are those orders worth to park? Well, you know, look at that slide 38, but, you know, you'd probably say about a quarter billion dollars. Now, there's a couple things that that's going to be deliveries past 2029, so that assumes that we're still on the program after that. You know, my guess is we will be, and I also guessed that, you know, the Pricing might go up a little bit after 2030. But just kind of round ballpark numbers. Now, if you want to talk about life of programs in 2045, 2050, you can do that math. I'm not even going to go there. So what happened? Why did the market share of firm engine orders shift so abruptly and dramatically in favor of the LEAP 1A engines? So we talked about this last time. We won't dwell on it too much. This is all in the news. You can read about it yourself. Serious issues with the Pratt 1100G engine. These have been extensively reported, so we're not going to cover them here again. So why don't we just go on to slide 26. The top item is actually a new one, so we'll talk about that. FAA just published a new proposed rule in December 11, 23, requiring inspection of additional Pratt 1100G parts, which could be affected by the powder metal issues. That's kind of new news. What are the full implications? Hard to say. Will lead to further market share gains for LEAP-1A. I don't know. What do you think? Meanwhile, just meanwhile, CFM is playing for induced upgraded components of LEAP-1A engine. You see what's going on here? Pride is really struggling. You know, you have to feel sorry for them with a really difficult problem. On the other hand, LEAP is kind of making improvements to their engine to actually improve durability. Let's go on to slide 27, please. We're continuing here on the update. So this is still on that A320 family, the A320XLR variant. Supposed to be entrance service second quarter of 2024. That's pretty much around the corner. That's really nice. That's exciting for PARC. That's good news. COMAC 919, let's just skip down to the last couple items. They recently made the first flight outside mainland China, and we've got to put them right in Hong Kong, so I don't know if that's considered mainland China. I think it might be, but anyway, it's news. Because, you know, these COMAC airplanes are thought of as mostly for the Chinese domestic market. They recently unveiled a stretched and shortened version variant of the airplane, at least plans to produce them. So that's really exciting. So COMAC's not sitting still. They're doing more development work with this aircraft type. Let's go on to 28, another COMAC, Chinese COMAC aircraft, which is a regional jet. And last check item, COMAC recently delivered its first two ARJ21 converted freighter aircraft, which is nice. And COMAC hailed this as a solid step forward for China's aerospace sector. Any history buffs? Does that sound like anything to you? You ever hear of the Great Leap Forward? Do you think that's a coincidence? I don't know. I have no idea. When I read that, I thought, well, it kind of sounds like a great leap forward. If you don't want to know about that, you might want to look it up. Let's go on to slide 29. So the Cripple 7X aircraft, this is an exciting program for PARC. And it's starting to actually happen. Expect to ship approximately 2 million of materials for this program in counter 24. Boeing said that it will be certified in 25. They're building ahead, of course. And, you know, this is important. With the cancellation of the 747-8380, this 777X occupies unique space in the long haul, high payload capacity, wide body aircraft market. It will likely continue to do that for a long, long time. Why is that? Because nobody's planning anything to compete against it. It could be a significant program for PARC. And then last, we always talk about the legendary Boeing 747. Thank goodness for Sparrow's. Let's go on to slide 30. So we have G Aviation Jet Engine program sales history and the forecast estimate. So the sales history, you know, about it, look at the right-hand column, you know, Q1, 6.2 million, Q2, 3.1, Q3, 4.15. So Q2 and Q3 were those burned-down quarters. Q4, we got booked $7.5 million. So much for the burndown, I would say. $7.5 million. Go look through the quarters. Is there any $7.5 million quarters? I don't. I think there were a couple, you know, before the pandemic, you know, that were at that level, maybe two quarters. But you have to go back a little further in history. So goodbye, MRAS inventory burndown. I would say that's relatively good news for PARC. And we predicted this, but we'll get to that in a minute, I guess. Slide 31, the sharp drop-offs in Q2 and Q3, G aviation, jet engine program sales, it's all about that burndown. The MRAS calendar year 23 bill plan, that's their bill plan on ours, translated into about $23 million of PARP, GAVs, and program sales. We covered this last time. So what happened? Why were our sales less than that in Q2 and Q3? Well, we already told you the answer. That's highlighted at the bottom, the burndown. It explains the whole thing. Let's go on to slide 32. So will this kind of disruptive inventory burndown happen again? Oh, I think so. It likely will. It's happened before. It'll happen again. There may be some likely will be some degree of quarter-to-quarter volatility in our GE program sales because of inventory management challenges. Maybe somewhat of a rollercoaster ride from time to time. So we talked about this at some length in Q2, just talked about the aerospace industry in general, how it has this propensity to, you know, have inventory management challenges, you know, and we can't do anything about that. You know, we decide to, To be a supplier to that industry, we have to work with it. We can complain about all we want, but it's a total waste of time. We're happy to ride the quarter-to-quarter GE program sales roller coaster and face the challenges presented by it because to us, the overridingly important consideration is the long-term outlook for the GE program sales as explained on slide 38. What the roller coaster ride does, this volatility does place additional pressure on us at PARC to be agile, nimble, and fast on our feet with our supply chain inventory and production management activities. You know, we've got to be able to respond quickly. And that's kind of our calling card at PARC. That's what we like to do. Slide 33. So we're still on the burndown. Sorry, it's such a big deal, and we spend a lot of time on it. But where are we going with the burndown? Well, in our Q2 presentation, we predicted that the burndown would likely be completed in Q3, as that the park inventory carried by MRS would be normalized by the end of Q3. Based upon our looking for Q4, that prediction was obviously correct. So we guessed right in that one. One more consideration regarding inventory management. As a general matter, it's very important to avoid overcorrecting and overshooting. Doing so can create additional volatility with increasing sine wave amplitudes and inventory swings. Now in our Q2 presentation, we indicated this was a concern of ours. And if our concern proved to be well-founded, it could result in a significant spike in demand in Q4 and into fiscal 25. We told you that in our Q2 call. Top of it, let's go to 34. Based upon our GA vision program, booking for Q4, that concern was obviously well-founded. Our decision to ramp up our costs in Q3 in order to be prepared for Q4 and spike in demand was obviously the right decision for PARC. You know, Bonnie, I remember a few months ago, Mark said to me that he's getting nervous. And I said, what do you mean? He said, well, you know, we try to track the inventory and it seemed like the inventory is burned down a lot, and these programs are ramping, and he said, boy, you know, he's concerned there's going to be this spike and we could get, you know, we could get overrun. And he was right, and obviously we decided not to get overrun by increasing, by staffing up and building up our costs in Q3 so we could be ready for Q4. So what do we think about all this? I know it sounds a little bit, you know, kind of smart-alecky, But we think it's mostly just noise and static. We think the freight train, the juggernaut, is coming down the tracks at us 100 miles per hour. It can't be stopped. So we'll talk about it on slide 38. We better be ready or we will be overrun, just like Mark was saying to me. Slide 35. Just FYI, the 24 MREX build plan, the air is not ours, translates into $28 million of 24 PAR-G aviation jet engine program sales. That build plan is a year old, so I think they'll probably update that build plan soon. Let's see what happens. Maybe it'll be higher. I don't know. Let's go on to slide 36. So now let's talk about PARC as a whole. We have the history just for perspective. And you can see Q1, Q2, Q3. And you see how weak Q2 and Q3 were because of the burndown. and other factors we described at the beginning of the presentation. What are we looking for, Q4? Well, about $15 to $16 million. Remember, $7.5 million for GE Aviation programs. That would be about $7.5 to $8.5 for non-GE Aviation. Talking sales and EBITDA, $3.2 to $4 million. That's just doing the math, really. A lot of variability in EBITDA based upon which programs are active, that kind of thing, and the timing of when additional costs get legged in But that's the best guess we can give you. And then we talk about the total for the year, and that's just kind of adding up the first three quarters plus the forecast for Q4. So nothing but just doing the math there. Looking at the 24 total compared to 23 total, the top line is about like 23, and the bottom line forecast is about like 23. 24, we're kind of stuck in the mud as compared to 23, but looking for that breakout that we were talking about going forward. Slide 37, following this or updated. Okay, we won't spend a lot of time with the preliminaries here because we went through this for the last two quarters. This is our outlook. Very important stuff, very critical stuff for both GE Aviation programs and parks generally. So we think that the outlook is actually more important and meaningful than the quarterly forecast we gave you, even though we did give you a quarterly forecast. What's the timing for the outlook? People always ask that. We don't know. We said the freight train is coming, can't be stopped, better be ready. I mean, the Airbus CEO said they're going to be at 26 in 2026, so I don't know. I mean, I'm not in a position to second-guess him. Why would I do that? Let's go on to slide 36. 38? Yeah, 38. So here's the juggernaut. This is a GAviation jet engine program driving Outlook. I'm not going to go through it because we went through it. There's hardly any meaningful, there's no meaningful change. Just a little kind of fine-tuning from Q2. The main thing we covered in Q2, I think, went through each program in detail during our Q2 call. So if you want, you can go back and listen to that. But the main thing we're trying to convey is that these forecasts are not aggressive. These are conservative. We went through each item, each program. The revenue per unit, we know that information. We have that from our customer. So the only question is, what do we assume in terms of energy units? And we went through the explanation of that in Q2. And like I said, we think they're pretty conservative. It ends up at $55 million based upon the assumptions that are listed below, which we will not go over. But, you know, you can read them. If you have any questions about them, let us know. Slide 39, this is the outlook for Olapark, not just GA Aviation. Sorry, we're running long, but we're almost there. And this is identical to the slide that we provided to you in Q2. It's just really important, so we wanted to provide it again, although there's no change. And, you know, the math is all explained in the footnotes. If you have any questions about it, just let us know. But we're saying the outlook is, about $150 million sales and $36 or $37 million. But this is an outlook. As we say, it's not a forecast because this does not include anything other than the programs that we're sole source qualified on and assumption of a small increase in our non-G aviation sales baseline, which is $32 million in sales. in fiscal 23, so we assume that'll go up to 40 million over the outlook period, which we think is actually kind of a walk in the park. I hope that doesn't sound arrogant, but that's how we look at it. So let's go on to slide, so yeah, slide 40 is just the footnotes for explaining the math, how we did it, pretty straightforward. Slide 41, so these are examples of programs that are not taken into account in the outlook. Like I said, not a forecast in outlook. Some of these programs will hit. Some probably won't. But some will, I think. We just can't tell you which ones. But I do want to highlight, we're not going to go through them all because they're really the same as we covered in our future presentation, except there's a new one. Major new manufacturing project is just the following slide. So let's go into this one. This is actually a big deal, you know. Just recently came up. Major new manufacturing project initiative for parks. requested by a highly motivated, long-term, large customer. We believe the project has a high degree of likelihood to proceed. Why is that? Because there's a motivated customer that wants it to proceed. It's extremely confidential, so I wanted to tell you about it. We wanted to tell you about it because it's a big deal, but we can't tell you anything about it, any details. But just to give you a perspective, in order to do this, we need to purchase a new factory for the project. Size 30 to 50,000, probably closer to 50,000 square feet. Capital estimated 6 to 10 million, an estimate. For the large workforce, that's the hardest part for us. I won't give you the number, but it's a lot of people. Now, we're looking seriously at automation to reduce the size of the workforce, but that would increase the capital spending of automation. Slide 43, preliminary estimate of revenues for the project, $20 to $30 million per year arranged. This is not, we're not talking speculation. I wish I could tell you more about it. I can't. We're not talking speculation about the revenue opportunity. There's lots and lots and lots of detail behind that. And it's probably more than 10 years, probably life or program, you know, again, whatever, 20 years, 25 years. So it's a big thing for PARC. High priority, potentially very important project for PARC and our customers. Let's go on to slide 44, a little bit of a change of pace here. We haven't talked about the James Webb Space Telescope for a little while. Revelations for the ages. Reminder here, 21 of Park's proprietary sigma struts are incorporated into the James Webb structure. The James Webb, along with our sigma struts, are established at the Lagrange 2 orbit point, located about 1 million miles from Earth. It's pretty far away. I don't know. I didn't look it up, but I think light travels at 186,000 miles per second. Maybe you could look that up. I think that's it. But if you do the math, that's about five light seconds away. Your light year is about five light seconds away. In other words, it would take about five seconds for the electromagnetic signals and stuff like that, radio signals, to come back from James Webb to the Earth. The James Webb recently spotted... This is just amazing stuff. You know, I kind of get chills even thinking about it. It's probably the oldest black hole ever seen, an ancient black hole with a mass of 1.6 million suns from 13 billion years ago. The James Webb spread of this black hole in the center of the infant galaxy. I hope this is not supposed to be a cute thing. These astronomers are sometimes clever. I hope that's not supposed to be Gen Z, you know. Maybe it is. It's a galaxy, GNC 11. That's only 440 million years after the birth of the universe.
spk19: But here's something in bold.
spk28: It's a big, big, big thing. Black holes of this magnitude are not supposed to have existed until much, much later in the development of the universe. So what's that about? Is the universe really 13.7 billion years old? Or is it much older than that? 13.7, I'm no scientist. I don't know anything about this stuff. But I think scientists measure the age of the universe by expansion and extrapolating back, you know, how many years it took to get started. But let's go on to the next one. Slide 45. Are theories about star and galaxy formation correct or fundamentally flawed? Are modern cosmological theories about the universe and its origins correct? are fundamentally flawed. And there's nothing more important than this. You know, our universe, how to get started. Data and images, sorry, you know, facts are facts. From the James Webb, turning modern cosmological science upside down and inside out. We thought we understood so much about the universe and its origins, but the James Webb is telling us we know so very little. Our theories are just not holding up. It is just beyond words and description what it means for us at PARC to be a very small part of the James Webb and its revelations for the ages. Let's go on to the last slide. Just quickly, these are little photos from our PARC family holiday party celebration. The thing I want to tell you about is this is actually, this is not like a meeting hall or something. This is our factory. You know, it's a factory floor. If we didn't have all these tables here, pork lettuce and stuff would be going through there. See that floor? This is the original factory. This is 15 years old. It's not a new factory. We don't clean the floor up for parties. It's the most beautiful factory I've ever been in. It's very special. So if you're ever in town and you want to come take a look, just let us know. We'll be happy to show you around. Okay, that covers our presentation, operator. So if there are any questions, I'd be happy to take them.
spk37: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tool will indicate that your line is in the question queue. And you may press star two 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 keys.
spk36: One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Nick
spk37: Ripostella with NR Management. Please proceed with your question.
spk39: Good evening, and Happy New Year, Brian, and to the whole team there. I know you can't get into specifics of this potential new program, but might you be able just to say something about the math behind it in terms of, you know, the kind of rate of return profile that something like that would have? Or, you know, can we just assume it would be similar to, uh, you know, the existing profile and, uh, yeah, do the best you can. Uh, you know, look, when you say, talk about the company and you use the word conservative, I trust you. I can take that to the bank. So you could be conservative. But, uh, the second question is, uh, you know, obviously park has a very bright future. Um, and as you've said in the past, you paid your dues. So, uh, concerning how much cash do you think the company really wants to keep on the balance sheet, you know, going forward? What do you think, what's your viewpoint on that?
spk28: That's a tougher one. The first one, yeah, the margins are quite good on this new project, quite good. And maybe better than our existing margins, you know. Certainly not worse, maybe better than our existing margin, so quite good. And by the way, Happy New Year, Nick. Thank you for your questions. So hopefully that gives you a little perspective. There's a lot of information. This is not just kind of like starting. We have lots of information, a lot of numbers that have been crunched, so we know a lot about this project. So when I say the margins look quite good, That's not just, you know, kind of off the top of my head stuff. How much cash do we want to keep? Well, that's why I mentioned we got the $9.3 million that we still got to pay the IRS for that, you know, their patronage and stuff. Well, I don't know. I mean, good question. It's something we think about. The board talks about it all the time. It's really nice to have cash so that if we want to do this project, We said $6 million to $10 million, but let's say we spend more money on automation. Let's say it's more than that. It's nice to be able to say, yes, we'll do it, rather than, okay, where do we get the money for it? And the customer that approached us, they know that, too. We're a public company, so they know that if we both agree to do it, that we're not going to come back and say, oh, sorry, we don't have the money. So I don't know. That's a good question, Nick. I mean... I'm not really going to say, oh, we've got way too much more cash than we'd like to have. When we had $150 million or so, I would have said that. But at this point, yeah. I mean, it's really nice to have the cash we have, but I wouldn't say, oh, my God, we have so much excess cash. I don't know if that helps, but that's kind of an off the top of my head, off the cuff answer. It is something we talk about at the board level quite a bit, though.
spk39: Okay. Well, can I just ask another question?
spk14: Sure.
spk39: I know. Just, you know, I mean, obviously, you know, with what's going on there, you know, you're going to start generating cash, you know, hopefully in the next couple of years. So, you know, even after you pay the taxes and things like that, I mean, it's just, you know, obviously it's nice. We like that you run the company very conservative like that. But, you know, with programs like this, you know, I'm just, trying to fill it out a little bit, but I understand where you're coming from. Thank you.
spk28: Yeah. Yeah. Good point. It's not a static number. We, you know, you're right. We expect to generate cash. So it's something that, you know, really we have to evaluate it on an ongoing basis. Nick, I think it's just, it's nice to, you know, to have something so that when opportunities present themselves, we can go after them. You know, we never thought of like a buying stock, buying back stock is our biggest priority, but we'll do that as well. If the, you know, if the price is right and the opportunity presents itself. So it's nice to have cash available for that as well. You know, companies, they go borrow money to buy back stock. It's like, okay, that's an interesting way of doing business, but it's not our way of doing business. So, you know, we plan to be around a long time. We're not playing for a couple of years and playing games with our, you know, what do you call it, financial engineering stuff. So, okay. Does that help or any other questions? Yeah.
spk39: Thank you so much. Best of luck for the rest of the year and next year.
spk28: Thank you very much, Nick.
spk27: Happy New Year to you and your family.
spk39: Okay. Thanks.
spk37: Thank you. There are no further questions at this time, and I would like to turn the floor back over to Mr. Brian Shore for closing comments.
spk28: Thank you, Operator, and thank you, everybody, for listening in. It was really nice to be able to share what's going on at PARC with you. Again, wish you and your family a happy new year. That comes from both Matt and me and Martina, Donna, all of us. And we'll be around. If you have any questions, feel free to give us a call. Happy to talk to you.
spk27: So you have a good day, and we'll talk to you soon. Goodbye.
spk37: This concludes today's teleconference you may disconnect your lines at this time.
spk36: Thank you for your participation. do do Thank you. Thank you.
spk37: Good afternoon. My name is Camilla and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp third quarter fiscal year 2024 earnings release conference call and investor presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. At this time, I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.
spk28: Thank you, Operator. This is Brian. Welcome, everybody. And I want to introduce Matt, of course. He's with us, our CFO, as usual, Matt Farabaugh. And also we'd like to take this opportunity to wish you and your families a very happy new year. All the best to you in 2024 it is, right? Yep. We just announced our Q3 earnings, I guess maybe about 45 minutes ago. So you want to pick that up. And also in the earnings announcement, there's instructions as to how you would access the presentation that we're about to go through. You want to do that as well. The presentation is pretty long. Sorry about that. I really was thinking this one, I'm going to make it shorter. It ends up being longer. It's hard for us, or at least for me, because it just seems like sometimes there are important things to cover. We don't do the sound bites. We don't hire IR firms to do a little clever, kind of slick things. And I don't know why you'd want that anyway, because I would think you'd want to hear from management. So we're not as polished. It takes a little bit longer. It'd probably take about 45 minutes or so to go through the presentation. So just... be advised. We might skim through some of the items that we've gone through previously. There are some items in this presentation which were in the Q2 presentation as well, so that might help us a little bit. Before we get started, I just really want to give a shout out to Donna because Q3 is a bear for us because our holidays are kind of a mess. Not just the presentation, we're closing our financials, so Matt as well. But Donna, you know, helps me do all the PowerPoint stuff. I'm not even dangerous in PowerPoint. I can't do it at all. So every third quarter, you know, she's working through holidays. Before we get started, note again, it's our 70th year in business. It'll be our 70th anniversary is March 31. So I guess, what is that, a couple months off? It'll be 70 years if we make it that far. When do we get going? Slide two is our forward-looking disclaimer. Language, so we're not going to go through it. Please call us if you have any questions or let us know if you have any questions. Slide three, table of contents. First thing is the investor presentation. Appendix one, supplementary financial info, which we're not going to go through either, but if you have any questions about it, please let us know. Let's go on to slide four, take a little bit longer. So Q3, let's go through it. Sales, $11 million. Why don't we compare things to Q2, $11 million, $639 million. So that's a fairly low number in terms of sales, even lower than Q2, which was off. And I think you probably have a good understanding of Q2, and we'll go through the explanation of Q3 as well. And look at the margins I highlighted. We highlighted the margins, both the gross margins and EBITDA margins. So you can see the comparisons to Q2, which are not really favorable, but As I think we tell you a lot, we don't like it when we see our gross margins below 30%, so they're certainly below 30% this quarter, and our EBITDA margins are not really that desirable for us anyway either. Our observations and thoughts about our Q3, so what's going on here? Well, the MRAS inventory burned down, which we talked about at great length in our Q2 call, that continued through Q3, and we predicted when we did our Q2 call, we told you, we predicted that. Is that MRAS inventory burndown expected to continue into Q4? No, it's not. It's over, and we'll get into that in the presentation. But there's no more burndown. We will discuss the MRAS inventory burndown in greater detail throughout the presentation. Let's go to slide five. Let's talk about the non-G aviation sales. We talk a lot about G aviation. Non-G aviation sales were only 7.5 million in Q3. And that compared to $9.4 million in both Q1 and Q2, so that was off as well. So although there almost always will be some degree of quarter-to-quarter variability in our business, the trend is actually quite good for non-GA evasion sales, so we're feeling pretty encouraged about that. But what is the reason for or are the reasons for the quarter-to-quarter variability? There are numerous reasons, but for numerous reasons, the programs we're on who will be active in one quarter and may be inactive in another quarter, and we really have no control over that. There's very little we can do to control the timing of when programs that we are on will be active or inactive, and it would really be a waste of our time to even try to do that. It would exercise in futility, as we say here. But at PARCC, the key thing is we focus our energy and efforts on getting on new programs, which we believe will be supportive of our long-term objectives, rather than attempting to try to control the timing of programs already on. So let's keep going. Slide six. But nevertheless, this quarter-to-quarter variability does come with less than optimal visibility often. And it does require us, in part, to be very agile and fast on our feet with our supply chain, with our inventory, and our production management activities. So were there any new obstacles to completing sales in Q3? Yeah, there were, actually, and we'll get to that in a minute. But let's not talk about the bottom line. We'll talk about the top line. Why were the margins in Q3 lower than Q2? And we already showed you the comparisons. Well, there's a few reasons. There's a less favorable sales mix in Q3 compared to Q2. Q2, the sales mix actually was quite good. Q3, not quite as good. But as explained above, we have little to no control over which programs are active and which programs are inactive on a quarter-to-quarter basis. That's kind of rolling the dice a little bit if you look at it short-term. Will the higher margin programs be active in a quarter or less active? That we have almost no control over. Again, our objective is to get on more programs. The ones that we think are good programs, the better margin programs, and the timing is up to the customer or God or something outside of our control. The second item was lower sales. We talked about it in Q2. That affects our bottom line in Q2. Lower sales in Q3 compared to Q2. That affects our bottom line, of course. And here's a big one. Even though we fully anticipated that Q3 sales were going to be light compared to Q2, we intentionally ramped up our costs in Q3 to meet the reduction requirements of expected key program ramp-ups. So that was something we decided that was intentional, and we'll talk about that number again throughout the presentation. So why don't we go on to slide seven. Yeah, we saw that freight train coming. That's an analogy we use in our Q2 presentation. The freight train coming, meaning the program ramp-ups, we wanted to make sure we were ready. Although ramping up our costs took some conviction and maybe some guts, a little bit anyway. You know, it's hard when you see, you know, it's not going to be a good quarter sales-wise to ramp up your costs. But it turns out, we didn't know for sure, no guarantee, but we clearly were right with the benefit of hindsight to do what we did in ramping up our costs in Q3, and we'll explain that as we go through the presentation. So... It was a good move on our part, I would say, to do what we did. Other considerations related to Q3, how things are going with supply chain staffing, freight disruption. We talk about this a lot. You might be tired of hearing about it, but we're sometimes tired of dealing with it. Supply chain staffing challenges continue, but they seem to be improving to some extent. Or maybe there's more... that we have become more effective with dealing with them. Now, I just want to point out, we're not talking about supply chain issues for the whole industry. We're talking about our supply chain. The whole industry we'll talk about later on. That's probably more of a factor for us anyway in terms of the opportunity industry and how they're affected by supply chain constraints. International freight, well, that's a little bit of a different story. There's that war in the Middle East. which occurred after the end of Q2, I guess during the first part of Q3, which we didn't see coming. But it's causing serious disruption and challenges for international freight, disrupting, sorry, slide eight, disrupting shipments to customers in the Mideast and Asia. Yeah, we've got customers in Turkey and Israel, important customers. So you can only imagine what kind of chaos that is. And then we also have customers in Asia where, There's not a war in Asia, not yet anyway. Hopefully it'll stay that way. But nevertheless, the sea freight goes through the Middle East. I guess now it's going through the hornets of Africa. It's way out of the way. So that's not a lot of fun. Total misshipments in Q3, about 560,000. I don't have it in front of me, but I think it was only about 220 in Q2. So in other words, Q2, we're really getting much better, but we have a big setback in Q3, and that's almost all related to international freight disruptions. So there you go. Also, our margins continue to be affected by inflation. I know inflation is supposed to be all gone, but I don't buy that. And cost-related operating are recently commissioned, new plant in Newton, Kansas. This is all planned and expected, but obviously planned, You don't turn a plant on and you're at full capacity. It's not how it works. Let's go on to slide nine. Okay, this is our historical fiscal year results. And for perspective mostly, let's talk about it a minute. Normally we don't spend much time on this one. Look at the sales in 17, 18, 19, 20. It kept going up like 10 million, 31, 40, 51, 60. Really nice. And then what happened was this little thing called a pandemic. So sales were – really badly affected in 21 and 22, 23 and 24. If you look at our forecast on slide 36, 24 is going to be our, our forecast is something like 23, like 55 million top line, 11 and a half million dollar EBITDA. So we got, you know, three years where we just haven't been able to break out the pandemic. The disease part is, you know, mostly over, but boy, did we screw up, you know, the, um, the global economy, supply chain, staffing. We have supposedly full employment, but, you know, so many people left the workforce. I don't know how that problem gets solved so easily. You probably know better than I do. But, you know, at least from my perspective, it seems like a problem that may not get totally solved so easily. But anyway, if you look at our top line numbers, you can kind of see the pattern there. Now, we're hoping, and we have recent hope, that we're going to start to move that, you know, we're going to start to have that growth dynamic kick in again starting in this fiscal year, you know, return to the growth dynamic. But let's go ahead and let's talk about, let's go on to slide 10. Okay, quickly in this one, we always cover our balance sheet and dividend stuff. So we got zero long-term debt, $74 million of cash we reported. But don't forget, there's 9.3 million of remaining debt. transition tax installment payments payable through June 25. That relates to repatriation tax. I think it was based on the Trump tax law, which was very good for Park. But nevertheless, we have some installment payments. So, you know, you can think about how you like. We kind of think about that as almost like debt, like we owe that money. So when we think of our cash, we think, well, you know, we still got to give $9.3 million of is these transition taxes to all the payments to the government. That's in addition to our regular tax payments, which we're not talking about. Dividend, yeah, you know about our dividend. We've paid a lot of dividends. Paying for eight years, $588 million since 2005. And like I always like to say, that's a hell of a lot of money for a little company like Park. I want to slide 11. This is just kind of a reminder, as you know, On May 23, 2022, the board authorized a buyback of 1.5 million shares. We've purchased about 221,000 shares so far. It looks like we have about, what is it, 1,279,000 shares still available to be purchased under the authorization. We're not saying whether we're going to buy stock or not, but we just want to remind you that the authorization is out there just so you remember that. Let's go on to slide 12. Okay, every quarter we tell you about our top five. This is a slide that Donna prepares. We do a little nice picture of, you know, one of the programs that these customers run. So they're a contractor for AirJet, and AirJet relates to the Pac-3 missile. We talk about that a lot. Aerospheres, they're a contractor for Israeli aircraft. and that relates to the G280. So that's a Gulfstream airplane, but Gulfstream has some contract with Israeli Aircraft, under which Israeli Aircraft produces the G280 airplane. Kratos, you know all about Kratos. We talk about it almost, I think, every quarter, featuring this Mako unmanned tactical drone. Middle River, yeah, every quarter, of course. 747-8, that's, I think, our favorite airplane. And then Nordam, that's the global 7500. They make some components for the engines for this global 7500 with our materials. Let's go on to the next slide, slide 13. Our pie charts, I always like these. I don't know if they are useful to you, but I kind of think they have messages in them. And if you look at the first nine months of this year, you'd say, yeah, commercial a little bit off as compared to the prior two years. And that would be based upon what? That would be that burndown. That's causing commercial to be a little bit like in the fiscal 2024 first nine-month pie chart. Let's go on to slide 14. So Park loves niche military aerospace programs. This is Elena's project every quarter to come up with some kind of fun, interesting, and cool examples of military programs to run. The pie chart's interesting. Let's talk about that for a second. Rocket nozzles, drones, structures, those, sorry, radomes, those are niche markets for us. But even the structures we consider to be a niche market. Quickly, the SpaceX Falcon 9 launcher with Dragon spacecraft materials and ablatives. The Northrop Grumman E2D, that's parts and materials. And both the Blackhawk and the Lockheed G5, two very different kinds of aircraft, but those are multiple materials. And the MK-56 vertical launch system, that's for the Navy, and those are ablated materials. Let's go on to slide 15. So let's talk a little bit about trends in the aerospace industry. Commercial aerospace markets, domestic air travel report fully recovered. That's good news for single aisle like the A320neo aircraft. International travel is reported to be approaching pre-pandemic levels. Also very good news for long-haul widebodies like the Boeing 777XC. I'm a little biased because I keep talking about programs we're on. Not surprisingly, demand for commercial aircraft is very high. Supply chain and labor shortage challenges continue to be the biggest headwind for the commercial aircraft industry. But there are recent reports of supply chain stabilization and improvement. But I'll tell you what, we're not going to believe events. We'll see about that. You know, it seems like it's inconsistent. You know, some places may be better, some places maybe not better. But notwithstanding these ongoing supply chain constraints, many now believe that 2024 will be the year the commercial aircraft industry breaks out and ramps up production in earnest. You know, at the beginning of every year, calendar year, there's always a prognosticator, isn't there? crews and stuff that have reported reports. But I've read a number of them recently, you know, aerospace analyst types that are saying that, you know, this year may be the year that commercial aircraft industry really breaks down and kind of gets past the supply chain constraints. We'll see about that. But I think there might be some reason to be optimistic. Let's talk about that. Let's go to slide 16. The recent impressive ramp-up of A320neo family aircraft deliveries. Now, this is not prognostication. These are facts. we'll get to that in slide 21 and 22, regarding that delivery ramp-up, is supportive of that view. Now, should we use the 8 through 20 NEO family aircraft deliveries as a proxy for a commercial aircraft industry? I don't know, but considering that that program is expected to be the largest commercial aircraft program in the history of the universe, maybe we should consider using it as a proxy. Now, military markets, proxy for the for the industry, you know, breaking out, let's call it, the commercial aircraft industry. Military markets. So the global demand for military and defense hardware, including missile, missile defense systems, such as a factory missile. Again, we kind of bias, we talk about the programs we're on. Quite high and elevated by the wars. Extreme tensions in the globe. Let's go on to slide 17. Also high level of interest in unmanned and potentially autonomous systems, such as the Kratos, Valkyrie.
spk14: What's going on here?
spk28: I'm not an expert, but I'm just wondering. You've got missiles, missile offense, drones. Maybe this is to avoid boots on the ground so we could do our wars without getting people in the middle of them. I know that's kind of a cynical way to look at it, but you probably have a more enlightened opinion than I do. The markets for military and defense hardware are also affected and in some cases constrained by international political and budgetary factors. We read about that stuff every day. And in some cases, supply chain and labor constraints continue to limit the ability of military defense OEMs to meet the demand, the market demand for the hardware. A little picture of the Valkyrie here, which is nice. And the last item on this slide, we're on slide 17. December 17, 2023 was the 120th anniversary of the Wright Brothers' first powered flight. So happy anniversary, aerospace industry. Let's go on to slide 18. Okay, you're familiar with this slide if you've listened to other presentations. We go through this every quarter. And this just kind of gives you context because GE aviation programs are really important and we talk about them. This is just background. We're not going to go through the programs. We have a firm pricing LTA through 2029 with Middle River Air Structure Systems, a sub of ST Engineering Aerospace. What is that? I don't get that. Because all these programs are GE aviation programs. So what's going on here? Well, What's going on here is when we got in these programs, Middle River, MRAS, which is old Martin and Glenn Martin Company in Baltimore, you know, then Lockheed Martin. Anyway, they were part of GA Aviation. So when we got in these programs, they were part of GA Aviation. I remember about four or five years ago, I'm not sure, I remember GA Aviation sold MRAS to SD Engineering Aerospace, which is a large Singapore aerospace company, but we're still supplying it to those companies. G-Aviation programs. And actually, the redundant factory, that was an agreement we reached with G-Aviation to build that redundant factory. They wanted their redundancy because they're kind of betting a farm with us being sole source on these programs. So I won't go through the programs. If you have any questions about them, let me know. Let's go on to slide 19, the first two items. Again, programs, we're not going to go through them. Just let us know if you have any questions. Third bullet arrow item, MRES-QAL, three PARC proprietary film adhesive formulation product forms in progress. That's new. That's interesting and pretty great for PARC. PARC MRES LTA through 2029 recently amended to include the three PARC film adhesive product forms for composite bond and metal bond. That's really great for PARC. Life of program agreement requested by MRES. Yeah, and SDE, they both said, yeah, 29 is nice, but we need a commitment for longer than that. So the agreement is in progress. What's that agreement worth the park? I don't know. You tell me. You might, what is that? Is it slide 38 that has the, let me see if that's the slide. No, 30, yeah, 38 has the analysis of the revenues, annual revenues for the GE aviation programs. LIFER program, I don't know. You tell me, you know, 2045, 2050. These airplane programs are just starting, so we're so lucky, so fortunate. The programs are on. They're new programs, so they're going to go a long, long, long, long time. Very lucky. The 747, that program ended, so that's sad. But the other programs are on now. They have a long way to run. Slide 20. Okay, we're going to go through some of the programs. We'll try to skip through some of this or skim over it because we covered every quarter. Let's cover the high points. First of all, A320neo. That's the big dog. That's the big one. That includes this whole A320neo family. Huge backlog, huge, 6,750 airplanes. That's a backlog. That doesn't include all the airplanes that have been shipped. Airbus continues to say they're going to be at 75 per month production and deliveries in 2026. Are they going to make it there? Let's go on to slide 21. Let's think about that. So how is Airbus doing so far with their planned aircraft? A320 NEO family aircraft production ramp-up. That's pretty well, actually. According to reports, 73 deliveries in December. Well, that's a lot. An average of 57 per month in Q4 of 23. That's a lot. And 563 total in calendar year 23. That's a lot. That's an average of 47 per month in calendar year 23. Let's get some perspectives. What's the history? 18, you can see what's going on here. They're ramping up, end of pandemic. Let's talk about, what do we talk about per month? So 18, 32 per month, 19, 47 per month, and then oops, so we got the pandemic, 20, 36, 21, 38, and 22, 43. Everybody said they wanted to maintain 40 through the pandemic. They almost got there, a little bit light in 2021, but they did keep some production going good for them. Now, let's take a look at something else. So it was 563 in 23. 561 was their big year before, sorry, 19, with 561 was their big year before the pandemic. So we just eked out in 23, 561, which is a big year. So that kind of says, you know, things are getting past the pandemic, notwithstanding little supply chain stuff and everything else that's holding things back. And the other thing you want to look at is that, It wasn't level at 47 per month through calendar 23. 73 in December, 57 in the last quarter. So I would say, yeah, during the year, things are moving up. And we'll have to see how things work out as we go forward. I think there's actually a comment about that. Let's go on to slide 22. So for the first in 23, calendar 23, for the first time since the beginning of the pandemic, Airbus was able to return to those A320neo family aircraft production and delivery rates to those pre-pandemic rates. What do you call it? Italics, I guess. A very key milestone and accomplishment for Airbus. Good for them. Now, this is what I was thinking about. There could be monthly ups and downs. There will be monthly ups and downs for A320neo aircraft family deliveries. But it's quite apparent, at least to me anyway, that the ramp is real and not going away. You know, I wouldn't be surprised in the first couple of months of the 24. I don't know. I don't have any information. I'm just speculating it could be a little light, but that's how it often is because they push a lot of airplanes out at the end of the year. Clearly, based upon the huge backlog, though, Airbus would be producing these aircraft at a rate of 75 per month already, if not for supply chain constraints. And by the way, just FYI, According to reports, Airbus booked 257 new orders in December of 23. That's a lot of new orders. They booked an unheard of 1,693 new A320 family aircraft orders in 23. Those are just incredible numbers. We're so fortunate to be on that program. Just luck, really, I guess. Slide 23. What about those engines, though, for the A320, Neil? Boy, we lead a charred life, I'll tell you. So remember that there are two approved engines for the A320neo, the LEAP 1A and the Pratt 1100G GTF engine. And we only supply into the LEAP 1A and not the Pratt. This is, you know, I was talking about Elite of Charmed Life. Because the LEAP 1A market share has been hovering about 60% for the last, you know, couple of years. Let's go on to slide 24. Then what happened? That all changed. LEAP 1A has broken out as a clear market share winner for the 8 through 20. According to this December 23 edition of Aeroenginews, that's our Bible for a huge amount of data in this monthly publication. CFM, Leaf 1A market share, firm orders, 8 through 20 new aircraft, only 65.6% as of October 31. Well, how the heck did that happen? The thing is, there's just so much ballast in that market share with over 12,000 firm engine orders between the two How the heck do you get to 65.6% in just a couple of months? It's incredible. At the delivery rate of 75 H3 Neo family aircraft per month, that 65.6% market share translates into 1,181 LEAP 1A engines per year. What's it worth to park? Well, we'll talk about it on slide 38. We'll get there. Slide 25, so there are also currently 8,150 firm LEAP 1A engine orders. That's a lot of engines. What are those orders worth to park? Well, you know, look at that slide 38, but, you know, you'd probably say about a quarter billion dollars. Now, there's a couple things that that's going to be deliveries past 2029, so that assumes that we're still on the program after that. You know, my guess is we will be, and I also guessed that, you know, the Pricing might go up a little bit after 2030. But just kind of round ballpark numbers. Now, if you want to talk about life of programs in 2045, 2050, you can do that math. I'm not even going to go there. So what happened? Why did the market share of firm engine orders shift so abruptly and dramatically in favor of the LEAP 1A engines? So we talked about this last time. We won't dwell on it too much. This is all in the news. You can read about it yourself. Serious issues with the Pratt 1100G engine. These have been extensively reported, so we're not going to cover them here again. So why don't we just go on to slide 26. The top item is actually a new one, so we'll talk about that. FAA just published a new proposed rule in December 11, 23, requiring inspection of additional Pratt engines. 1100 G parts, which could be affected by the powder metal issues. That's kind of new news. What are the full implications? Hard to say. Will lead to further market share gains for LEAP 1A. I don't know. What do you think? Meanwhile, just meanwhile, CFM is playing for induced upgraded components, LEAP 1A engine. You see what's going on here. Pride is really struggling. You know, you have to feel sorry for them with a really difficult problem. Um, And on the other hand, LEAP is kind of making improvements to their engine to actually improve durability. Let's go on to slide 27, please. We're continuing here on the update. So this is still on that A320 family, the A320 XLR variant. Supposed to be entrance service second quarter of 2024. That's pretty much around the corner. That's really nice. That's exciting for PARC. That's good news, so. COMAC 919, let's just skip down to the last couple items. They recently made the first flight outside mainland China, and we've got to put them right in Hong Kong, so I'm not sure that's considered mainland China. I think it might be, but anyway, it's news. Because, you know, these COMAC airplanes are thought of as mostly for the Chinese domestic market. They recently unveiled a stretched and shortened version variant of the airplane, at least plans to produce them. So that's really exciting. So COMAC's not sitting still. They're doing more development work with this aircraft type. Let's go on to 28, another COMAC, Chinese COMAC aircraft, which is a regional jet. And last check item, COMAC recently delivered its first two ARJ21 converted freighter aircraft, which is nice. And COMAC hailed this as a solid step forward for China's aerospace sector. Any history buffs? Does that sound like anything to you? You ever hear of the Great Leap Forward? Do you think that's a coincidence? I don't know. I have no idea. When I read that, I thought, well, it kind of sounds like a Great Leap Forward. If you don't want to know about that, you might want to look it up. Let's go on to slide 29. So the Cripple 7X aircraft, this is an exciting program for PARC. And it's starting to actually happen. Expect to ship approximately 2 million of materials for this program in calendar 24. Boeing said that it will be certified in 25. They're building ahead, of course. And, you know, this is important. With the cancellation of the 747-8380, this 777X occupies unique space in the long haul, high payload capacity, wide body aircraft market. It will likely continue to do that for a long, long time. Why is that? Because nobody's planning anything to compete against it. It could be a significant program for PARC. And then last, we always talk about the legendary Boeing 747. Thank goodness for Spares. Let's go on to slide 30. So we have G Aviation Jet Engine Program Sales History and the Forecast Estimate. So this is the sales history, you know, about it. Look at the right-hand column, you know, Q1, 6.2 million, Q2, 3.1, Q3, 4.15. So Q2 and Q3 were those burndown quarters. Q4, we got booked $7.5 million. So much for the burndown, I would say. $7.5 million. Go look through the quarters. Is there any $7.5 million quarters? I don't. I think there were a couple, you know, before the pandemic, you know, that were at that level, maybe two quarters. But you have to go back a little further in history. So goodbye MRAS inventory burndown. I would say that's relatively good news for PARC. And we predicted this, but we'll get to that in a minute, I guess. Slide 31, the sharp drop-offs in Q2 and Q3, GE Aviation Jet Engine Program sales, it's all about that burndown. The MRAS calendar year 23 bill plan, that's their bill plan on ours, translated into about $23 million of PARP, GAVs, and program sales. We covered this last time. So what happened? Why were our sales less than that in Q2 and Q3? Well, we already told you the answer. That's a highlight at the bottom, the burndown. It explains the whole thing. Let's go on to slide 32. So will this kind of disruptive inventory burndown happen again? Oh, I think so. It likely will. It's happened before. It will happen again. There may be some likely will be some degree of quarter-to-quarter volatility in our GE program sales because of inventory management challenges. Maybe somewhat of a rollercoaster ride from time to time. So we talked about this at some length in Q2, just talked about the aerospace industry in general, how it has this propensity to, you know, have inventory management challenges, you know, and we can't do anything about that. You know, we decide to, To be a supplier to that industry, we have to work with it. We can complain about all we want, but it's a total waste of time. We're happy to ride the quarter-to-quarter GE program sales roller coaster and face the challenges presented by it because to us, the overridingly important consideration is the long-term outlook for the GE program sales as explained on slide 38. But the roller coaster ride, this volatility does place additional pressure on us at PARC to be agile, nimble, and fast on our feet with our supply chain inventory and production management activities. You know, we've got to be able to respond quickly. And that's kind of our calling card at PARC. That's what we like to do. Slide 33. So we're still on the burndown. Sorry, it's such a big deal, and we spend a lot of time on it. But where are we going with the burndown? Well, in our Q2 presentation, we predicted that the burndown would likely be completed in Q3, as that the park inventory carried by MRS would be normalized by the end of Q3. Based upon our looking for Q4, that prediction was obviously correct. So we guessed right in that one. One more consideration regarding inventory management. As a general matter, it's very important to avoid overcorrecting and overshooting. Doing so can create problems. additional volatility with increasing sine wave amplitudes and inventory swings. Now in our Q2 presentation, we indicated this was a concern of ours. And if our concern proved to be well-founded, it could result in a significant spike in demand in Q4 and into fiscal 25. We told you that in our Q2 call. Top of it, let's go to 34. Based upon our GA vision program, booking for Q4, that concern was obviously well-founded. Our decision to ramp up our costs in Q3 in order to be prepared for Q4 and spike in demand was obviously the right decision for PARC. You know, Bonnie, I remember a few months ago, Mark said to me that he's getting nervous. And I said, what do you mean? He said, well, you know, we try to track the inventory and it seemed like the inventory is burned down a lot, and these programs are ramping, and he said, boy, you know, he's concerned there's going to be this spike and we could get, you know, we could get overrun. And he was right, and obviously we decided not to get overrun by increasing, by staffing up and building up our costs in Q3 so we could be ready for Q4.
spk29: So what do we think about all this?
spk28: I know it sounds a little bit, you know, kind of smart-alecky, But we think it's mostly just noise and static. We think the freight train, the juggernaut, has come down the tracks at us 100 miles per hour. It can't be stopped. So we'll talk about it on slide 38. We better be ready or we will be overrun, just like Mark was saying to me. Slide 35. Just FYI, the 24 MREX build plan, the air is not ours, translates into $28 million of 24 PAR-G aviation jet engine program sales. That bill plan is a year old, so I think they'll probably update that bill plan soon. Let's see what happens. Maybe it'll be higher. I don't know. Let's go on to slide 36. So now let's talk about PARC as a whole. We have the history just for perspective. And you can see Q1, Q2, Q3. And you see how weak Q2 and Q3 were because of the burndown. and other factors we described at the beginning of the presentation. What are we looking for, Q4? Well, about $15 to $16 million. Remember, $7.5 million for GE Aviation programs. That would be about $7.5 to $8.5 for non-GE Aviation. Talking sales and EBITDA, $3.2 to $4 million. That's just doing the math, really. A lot of variability in EBITDA based upon which programs are active, that kind of thing, and the timing of when additional costs get legged in But that's the best guess we can give you. And then we talk about the total for the year, and that's just kind of adding up the first three quarters plus the forecast for Q4. So nothing but just doing the math there. Looking at the 24 total compared to 23 total, the top line is about like 23, and the bottom line forecast is about like 23. 24, we're kind of stuck in the mud as compared to 23, but looking for that breakout that we were talking about going forward. Slide 37, following this or updated. Okay, we won't spend a lot of time with the preliminaries here because we went through this for the last two quarters. This is our outlook. Very important stuff, very critical stuff for both GE Aviation programs and parks generally. So we think that the outlook is actually more important and meaningful than the quarterly forecast we gave you, even though we did give you a quarterly forecast. What's the timing for the outlook? People always ask that. We don't know. We said the freight train is coming, can't be stopped, better be ready. I mean, the Airbus CEO said they're going to be at 26 in 2026, so I don't know. I mean, I'm not in a position to second-guess him. Why would I do that? Let's go on to slide 36. 38? Yeah, 38. So here's the juggernaut. This is a GAviation jet engine program driving Outlook. I'm not going to go through it because we went through it. There's hardly any meaningful, there's no meaningful change. Just a little kind of fine-tuning from Q2. The main thing we covered in Q2, I think, went through each program in detail during our Q2 call. So if you want, you can go back and listen to that. But the main thing we're trying to convey is that these forecasts are not aggressive. These are conservative. We went through each item, each program. The revenue per unit, we know that information. We have that from our customer. So the only question is, what do we assume in terms of energy units? And we went through the explanation of that in Q2. And like I said, we think they're pretty conservative. It ends up at $55 million based upon the assumptions that are listed below, which we will not go over. But, you know, you can read them. If you have any questions about them, let us know. Slide 39, this is the outlook for Ola Park, not just G-Aviation. Sorry, we're running long, but we're almost there. And this is identical to the slide that we provided to you in Q2, which is really important. So we wanted to provide it again, although there's no change. And, you know, the math is all explained in the footnotes. If you have any questions about it, just let us know. But we're saying the outlook is, about $150 million sales and $36 or $37 million. But this is an outlook. As we say, it's not a forecast because this does not include anything other than the programs that we're sole source qualified on and assumption of a small increase in our non-G aviation sales baseline, which is $32 million in sales. and official 23, so we assume that'll go up to 40 million over the outlook period, which we think is actually kind of a walk in the park. I hope that doesn't sound arrogant, but that's how we look at it. So let's go on to slide, so yeah, slide 40 is just a footnote in explaining the math, how we did it, pretty straightforward. Slide 41, so these are examples of programs that are not taken into account in the outlook. Like I said, not a forecast, an outlook. Some of these programs will hit. Some probably won't. But some will, I think. We just can't tell you which ones. But I do want to highlight, we're not going to go through them all because they're really the same as we covered in our future presentation, except there's a new one. Major new manufacturing project that shows us in the following slide. So let's go into this one. This is actually a big deal, you know. Just recently came up. Major new manufacturing project initiated for parks. requested by a highly motivated, long-term, large customer. We believe the project has a high degree of likelihood to proceed. Why is that? Because there's a motivated customer that wants it to proceed. It's extremely confidential, so I wanted to tell you about it. We wanted to tell you about it because it's a big deal, but we can't tell you anything about it, any details. But just to give you a perspective, in order to do this, we need to purchase a new factory for the project. Size 30 to 50,000, probably closer to 50,000 square feet. Capital estimated 6 to 10 million, an estimate. For the large workforce, that's the hardest part for us. I won't give you the number, but it's a lot of people. Now, we're looking seriously at automation to reduce the size of the workforce, but that would increase the capital spending automation. Slide 43, preliminary estimate of revenues for the project, $20 to $30 million per year arranged. This is not, we're not talking speculation. I wish I could tell you more about it. I can't. We're not talking speculation about the revenue opportunity. There's lots and lots and lots of detail behind that. And it's probably more than 10 years, probably life or program. You know, again, whatever, 20 years, 25 years. So it's a big thing for PARC. High priority, potentially very important project for PARC and our customers. Let's go on to slide 44, a little bit of a change of pace here. We haven't talked about the James Webb Space Telescope for a little while. Revelations for the ages. Reminder here, 21 of Park's proprietary sigma struts are incorporated into the James Webb structure. The James Webb, along with our sigma struts, are established at the Lagrange 2 orbit point, located about 1 million miles from Earth. It's pretty far away. I don't know. I didn't look it up, but I think light travels at 186,000 miles per second. Maybe you could look that up. I think that's it. But if you do the math, that's about five light seconds away. Your light year is about five light seconds away. In other words, it would take about five seconds for the electromagnetic signals and stuff like that, radio signals, to come back from James Webb to the Earth. The James Webb recently spotted... This is just amazing stuff. You know, I kind of get chills even thinking about it. It's probably the oldest black hole ever seen, an ancient black hole with a mass of 1.6 million suns from 13 billion years ago. The James Webb spread of this black hole in the center of the infant galaxy. I hope this is not supposed to be a cute thing. These astronomers are sometimes clever. I hope that's not supposed to be Gen Z, you know. Maybe it is. It's a galaxy, GNC 11. That's only 440 million years after the birth of the universe.
spk19: But here's something in bold.
spk28: It's a big, big, big thing. Black holes of this magnitude are not supposed to have existed until much, much later in the development of the universe. So what's that about? Is the universe really 13.7 billion years old? Or is it much older than that? 13.7, I'm no scientist. I don't know anything about this stuff. But I think scientists measure the age of the universe by expansion and extrapolating back, you know, how many years it took to get started. But let's go on to the next one. Slide 45. Are theories about star and galaxy formation correct or fundamentally flawed? Are modern cosmological theories about the universe and its origins correct? are fundamentally flawed. And there's nothing more important than this. You know, our universe, how to get started. Data and images, sorry, you know, facts are facts. From the James Webb, are turning modern cosmological science upside down and inside out. We thought we understood so much about the universe and its origins, but the James Webb is telling us we know so very little. Our theories are just not holding up. It is just beyond words and description what it means for us at PARC to be a very small part of the James Webb and its revelations for the ages. Let's go on to the last slide. Just quickly, these little photos from our PARC family holiday party celebration. The thing I want to tell you about is this is actually, this is not like a meeting hall or something. This is our factory. You know, it's a factory floor. If we didn't have all these tables here, more collection of stuff would be going through there.
spk16: See that floor?
spk28: This is the original factory. This is 15 years old. It's not a new factory. We don't clean the floor up for parties. It's the most beautiful factory I've ever been in. It's very special. So if you're ever in town and you want to come take a look, just let us know. We'll be happy to show you around. Okay, that covers our presentation, operator. So if there are any questions, I'd be happy to take them.
spk37: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tool will indicate that your line is in the question queue. And you may press star two 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 keys.
spk36: One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Nick
spk37: Ripostella with NR Management. Please proceed with your question.
spk39: Good evening, and Happy New Year, Brian, and to the whole team there. I know you can't get into specifics of this potential new program, but might you be able just to say something about the math behind it in terms of, you know, the kind of rate of return profile that something like that would have? Or, you know, can we just assume it would be similar to, uh, you know, the existing profile and, um, yeah, do the best you can. Uh, you know, look, when you say, talk about the company and you use the word conservative, I trust you. I can take that to the bank. So you could be conservative, but, uh, the second question is, uh, you know, obviously park has a very bright future. Um, and as you've said in the past, you paid your dues. So, uh,
spk28: concerning how much cash do you think the company really wants to keep on the balance sheet you know going forward what do you think what's your viewpoint on that that's a tougher one the first one yeah the margins are quite good on this new project quite good and maybe better than our existing margins you know It's really not worse, maybe better than our existing margin, so quite good. And by the way, Happy New Year, Nick. Thank you for your questions. So hopefully that gives you a little perspective. There's a lot of information. This is not just kind of like starting. We have lots of information, a lot of numbers that have been crunched, so we know a lot about this project. So when I say the margins look quite good, That's not just, you know, kind of off the top of my head stuff. How much cash do we want to keep? Well, that's why I mentioned we got the $9.3 million that we still got to pay the IRS for that, you know, that patriots and stuff. Well, I don't know. I mean, good question. It's something we think about. The board talks about all the time. It's really nice to have cash so that if we want to do this project, We said it's $6 million to $10 million, but let's say we spend more money on automation. Let's say it's more than that. It's nice to be able to say, yes, we'll do it, rather than, okay, where do we get the money for it? And the customer that approached us, they know that, too. We're a public company, so they know that if we both agree to do it, that we're not going to come back and say, oh, sorry, we don't have the money. So I don't know. That's a good question, Nick. I mean... I'm not really going to say, oh, we've got way too much more cash than we'd like to have. When we had $150 million or so, I would have said that. But at this point, yeah. I mean, it's really nice to have the cash we have, but I wouldn't say, oh, my God, we have so much excess cash. I don't know if that helps, but that's kind of off the top of my head, off the cuff answer. It is something we talk about at the board level quite a bit, though.
spk39: Okay. Well, can I just ask another question?
spk14: Sure.
spk39: I know. Just, you know, I mean, obviously, you know, with what's going on there, you know, you're going to start generating cash, you know, hopefully in the next couple of years. So, you know, even after you pay the taxes and things like that, I mean, it's just, you know, obviously it's nice. We like that you run the company very conservative like that. But, you know, with programs like this, you know, I'm just, trying to fill it out a little bit, but I understand where you're coming from. Thank you.
spk28: Yeah. Yeah. Good point. It's not a static number. We, you know, you're right. We expect to generate cash. So it's something that, you know, really we have to evaluate it on an ongoing basis. Nick, I think, um, it's just, it's nice to, you know, to have something so that when opportunities present themselves, we can go after them. You know, we never thought of like a buying stock, buying back stock is our biggest priority, but we'll do that as well. If the, you know, if the price is right and the opportunity presents itself. So it's nice to have cash available for that as well. You know, companies, they go borrow money to buy back stock. It's like, okay, that's an interesting way of doing business, but it's not our way of doing business. So, you know, we plan to be around a long time. We're not playing for a couple of years and playing games with our, you know, what do you call it, financial engineering stuff. So, okay. Does that help or any other follow-up questions?
spk39: Yeah. Thank you so much. Best of luck for the rest of the year and next year.
spk27: Thank you very much. Happy New Year to you and your family.
spk39: Okay.
spk27: Thanks.
spk37: Thank you. There are no further questions at this time, and I would like to turn the floor back over to Mr. Brian Shore for closing comments.
spk28: Thank you, Operator, and thank you, everybody, for listening in. It was really nice to be able to share what's going on at PARC with you. Again, wish you and your family a happy new year. That comes from both Matt and me and Martina, Donna, all of us. And we'll be around if you have any questions. Feel free to give us a call. Happy to talk to you.
spk27: So you have a good day, and we'll talk to you soon. Goodbye.
spk37: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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