Park Aerospace Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 11, 2023

There are 4 speakers on the call.

Operator

Good morning. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. 4th Quarter Full Year 2023 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. Thank you. At this time, I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Thank you, Mr.

Operator

Shore. You may begin.

Speaker 1

Thank you, John, and welcome all to our Park's fiscal 2023 Q4 investor conference call. I have with me, of course, Matt Fauberbauer, our CFO, as usual. We announced our Q4 earnings this morning, so you want to pick up on that if you haven't so far. Any earnings released as to how you can access the presentation that we're about to go through. You can get on our webcast.

Speaker 1

It's also on our website. I don't know if you noticed, but for our standards anyway, the presentation is a little bit shorter than it has been recently. I think it's about 40 slides or 39 compared to over 50, maybe 55. But there's a lot to cover still, so it may still take the same amount of time. We're trying to take a little bit of different approach this time.

Speaker 1

We're going to focus less on program and project updates and industry trends. If you want that information, I suggest you might want to go back and check our Q3 investor call presentation or the company presentation, which has a lot of detail on that information that we tend to cover quarter after quarter. But like I said, a little bit of different focus we're going to try this time. We will cover the numbers, but then it will be more this presentation will be more on our outlook, something new After we're done with the presentation, going through the presentation, Matt and I will be happy of course to answer any questions you might have. So why don't we get started?

Speaker 1

Here we go. Slide let's go to Slide 2, our forward looking disclaimer. Just let us know if you have any questions about our forward looking disclaimer. Slide 3, and we have a little table of contents here as a presentation, supplementary financial information in Appendix 1. As you know, we normally don't cover, go through that information, but let us know if you have any questions about it.

Speaker 1

A little bit of a teaser here, We have photo of our new film line in production. We'll talk about this a little bit later, but if you notice from the news release, our new plant has been approved for production And it actually is in production. So let's go on to Slide 4. I'm going to slow down a little bit here. So here are the Q4 numbers.

Speaker 1

If you look at the right hand column, sales $13,530,000 gross margin at 28.5%. As we We say we don't feel very happy when the gross margin slips below 30%. We're not so pleased about that. EBITDA, adjusted EBITDA 2,625,000. So what do we say about Our Q4 during our Q3 investor call, we gave some estimates.

Speaker 1

Remember, our forecast estimates philosophy is that We tell you what we think is going to happen. We don't pad it. We don't give you a lower number, so we can beat it and become heroes, that kind of thing. I know that's what most other people do, But we just don't think that's appropriate for Park. So sales estimate, we it was $13,500,000 to $14,000,000 We barely squeaked in at bottom end of the sales estimate, but the EBITDA estimate was $3,000,000 to $3,500,000 So we came in considerably lower about, what is that, dollars 375,000 below the bottom of the range at 2,600 $25,000 So what happened here?

Speaker 1

Let's discuss that. Why do we if we made the obvious question As we made our sales number, why do we make the EBITDA number? So we should go into that and we will. And let's go to Slide 5, so So first of all, I want to give a shout out to our people for making The top line number, the sales estimate under very difficult circumstances, especially considering significant challenges with supply chain disruptions and unreliability. I know that we you're probably thinking we cover this stuff every quarter.

Speaker 1

It may be boring to you, but it's real life to us. It's a real life day to day struggle and challenge for us dealing Now we keep hearing that supply chain stuff will get better, is getting better. We haven't seen any meaningful improvement yet. And why don't we when we get to the Airbus A320 ramp later on in the presentation. Maybe we could think about supply chain and how well it's doing, because that might be a good proxy for the supply chain.

Speaker 1

Let's So, Cubata, sorry, let's go to the next bullet item. We're getting this is okay, important. This is a little bit new. We're getting better at managing the challenges by building inventory where it's possible and appropriate and providing suppliers with longer lead times where it's appropriate, but it's still a very challenging and difficult situation. The freight disruptions and unreliability, we'll give you an example of that, in a second.

Speaker 1

Ongoing staffing shortages, this has not gotten better for us, They said there's full employment in our country, but that's because so many people left the workforce, Which to us is a real tragedy, not only for us, but for the people whose kind of lives are lost and drifting That just have left the workforce and probably are not so capable of coming back to it. It's very sad. What will cause this problem to improve? I'm not sure With the full employment situation, but a lot of people say what was needed is a pretty good recession. So hopefully it doesn't come to that and we'll see what happens.

Speaker 1

I guess I won't comment anymore on that right now. Let's go on to Slide 6. Now here we go. Total missed shipments in Q4, approximately $1,400,000 That's a huge, huge number. Recently in the last few quarters, it's always a big number, but it's usually what, dollars 6,000,000, dollars 700,000, dollars 8 100,000, dollars 1,400,000 that's a doozy of a number.

Speaker 1

But here's the thing, dollars 1,200,000 approximately $1,200,000 of that number were miss shipments of higher margin ablative materials to overseas customers, really 2 shipments Japan and Italy, 2 very big shipments. What happened? The raw materials came in late, see, there you go. International freight, this is a real challenge. Our freight is refrigerated.

Speaker 1

We can't just put in any truck, so that limits our freight options considerably. When we go to international freight, it's even more challenging. And it's difficult for us to flex up our workforce when we're already maxed out. So we get the raw materials in last couple of weeks. We're scrambling around always.

Speaker 1

Always adjusting our We're often adjusting our manufacturing schedule because of supply chain issues. But we don't have the ability to just kind of flex up because we're really maxed out In the last couple of weeks to get stuff through the manufacturing plant and through testing so we can ship, factors which affected Our margins, now let's talk about margin. We talked about top line. Let's talk about margins in Q4. So here's an interesting thing.

Speaker 1

It's just coincidence, What is that $1,200,000 number? Again, fiscal 2023 Q4 sales of approximately 1,200,000 of Raycar Fabric, sold under by Park under our business partner agreement with Aerion Group for ablative applications. Remember how this works? This is just a markup. So for a lot of our big customers, they want to stock this material.

Speaker 1

We have this exclusive arrangement with Aerion Group in France. So we'll buy it, resell it, resell the product to the customer. We hold it for them often. And then when they are ready for to produce the material with this fabric that they've already bought, that they own. It's a small markup, Very small margin, that's the plan.

Speaker 1

When we have ultimately, it's a good thing now. We ultimately, we actually make the prepreg, the margins are quite good. So see what happened here, we lost $1,200,000 of this high margin product and we substituted with $1,200,000 of low margin product. That alone, That one factor alone will fully explain the EBITDA shortfall. It will get us to the low end of the range, Which is what you would expect since the sales were at the lower end of the range.

Speaker 1

Okay? So it's that $1,200,000 comp number, just Coincidence that it's exactly the same number, but it's very interesting how those two numbers work together. And like I said, I'll say it again, That factor alone, that's not the only factor. That factor alone would explain the shortfall in EBITDA. In other words, if that factor was reversed, we wouldn't have had an EBITDA shortfall.

Speaker 1

So let's go on to slide 7 because This is more of the story even though that factor alone would explain the EBITDA situation. What else are we talking about in terms of what affects our margins? Significant inflation, nothing on the way or beta, not yet not for us yet. And I won't go through all these items because this is just Now a repeat of what we've discussed in the last couple of quarters, pretty much everything. Now we've discussed this before, but let me just remind you some of these increased costs through to our customers in form of selling price increases.

Speaker 1

A couple of things here. First of all, some companies are just to us, I don't know. I mean, doing obscene price increases like doubling your prices and we're just not going to do that. We're long term players. We don't abuse our What we consider to be use our customers when accretion properly and decently.

Speaker 1

So we do raise our prices, but not kind of in abusive ways. So why is that not totally covered, the cost increases? The lag effect, when we talked about this, So when we accept a PO or renew a PO, we honor that PO. We don't halfway into the delivery period, we don't say we're raising our prices to our customers and that's something others are doing. We won't do that.

Speaker 1

And we have long term LTA pricing with Certainly, customers, particularly MRAS. We're not able to just pass through our inflationary cost increases. Let's go on to Slide 8. Supply Chain Disruptions Sorry, Causing Significant Inefficiencies in our manufacturing operation. So, if you're familiar with manufacturing, what manufacturing people normally want is good planning, plan out 3 or 4 months or 5 months In terms of what will be run and when, that's how manufacturing is going to be most efficient.

Speaker 1

Now our calling card is not like others. Our calling card To be responsive, be flexible, have urgency, so we like being able to we like having the ability to move around to adjust for customers. But this kind of stuff is just Beyond our experience, we guess the supply chain changes. We have something planned and then it doesn't the raw material doesn't come in, something else comes in, we We have to make adjustments. Every time we do a changeover with these treating operations, there's a lot of downtime, a lot of expense, a lot of extra expense.

Speaker 1

It's Hard to appreciate unless you've seen the operation, but it's a big deal. It has a big impact on our margins. Staffing shortages and limitations. So we're paying lots and lots of overtime and other inefficiency relating to our labor just because our staffing rather just because it's so tight And of course related to the newly commissioned plant in new plant in Kansas. So it's a good thing, it's a great thing, We just started to run it.

Speaker 1

So obviously, we don't have fully utilized yet. So there's at least for a period of time, a negative impact of the cost to that new facility, which we just started to actually produce product in for sale. Let's go on to Slide 9. So this is the fiscal year comparisons. And obviously, you look at 'twenty two compared to 'twenty three, you say, geez, the top line was about the same.

Speaker 1

23 as compared to 2022 maybe a little bit better. What happened to the bottom line? What happened to adjusted EBITDA? What happened to gross margins? Well, it's those factors We already discussed inflation supply chain staffing and we'll actually talk about that when you get a little bit further into the presentation in terms of quantifying what we think the impact of that was We get to Slide 27, so hopefully I'll remember to bring that up again.

Speaker 1

We get to Slide 27, it's further down the presentation. Let's go to Slide 10. We're going to move through this pretty quickly. We do this every quarter. Our top 5 air jet Rocketdyne, that's the Army Tactical Missile System, Aeromatrix, we don't have something for a muffler for them.

Speaker 1

Kratos, we obviously have the Kratos Valkyrie. Middle River, we have the Boeing 777X and then, Nordia, we have the 730seven-eight 100, that's for the weather master radome. Let's go on to Slide 11, pie charts. My only comment is you note that 'twenty three is very similar, 'twenty two. So it seems like we're kind of settling in to this kind of market segment breakdown.

Speaker 1

If you look at 'twenty one, it was very different, but That was a pandemic year. So let's keep going. Slide 12, Park Love's niche military aerospace program. This is a slide we do every quarter for you. We'd like to show you photos of some interesting military programs that we're on.

Speaker 1

And then we have our pie chart, Which not that different than prior quarters, but rocket nozzles, drones and radomes, we would consider those to be niche market, Space Small, but that's niche. Aircraft Structures, even for us, it's niche. For other people, it might not be niche. To us, it means more margins, better margins. Let's go to Slide 13.

Speaker 1

Okay. So we cover this, I guess, every quarter for last few quarters, the trends and considerations in The military markets, we talked about the war at a length and how it's affecting the military budgets and spending. Let's go on to Slide 14. If you have any questions about any of this stuff, at the end, let me know. Let us know, but we're just going to kind of scan through it, basically cover these things before Slide 14.

Speaker 1

I guess the top, the first item, arrow item is important because there is this desire to build up the military structure about what's holding it back is supply chain limitations. We also have some kind of issue regarding the debt ceiling negotiations that seems to be a factor as well. I think big picture is really supply chain that's holding things back. Let's see, next item, missile defense systems, we talked about this, we talked about the PAC-three Patriot missile. We're sole source in that program for ablated materials.

Speaker 1

Lots of countries want the PAC-three system for obvious reasons. Going to Slide 15. Last, the check item on Slide 15, our sales of Leblita materials and this C2B fabric were $7,750,000 We're providing that to you because we told you we would that we told you we'd give you an update at the end of the fiscal year. So you have that. Slide 16, we got some trends and considerations for commercial aerospace, not too much new here.

Speaker 1

The commercial aviation industry continues a strong recovery and rebound. Domestic aviation almost back to Where it was pre pandemic, international getting there as well, 75% to 80% pre pandemic. Customer demand seems to be there. But there are some watch and question items, which you talk about from time to time. Let's go to Slide 17.

Speaker 1

The economy, will people continue to fly at the same rates as the economy falters? Actually, there are early indications that maybe that the economy is having some impact upon travel patterns. I heard that Airbnb announced recently that they're seeing a little bit of slowdown in travel. So just something to be paid to pay attention to inflation. So you know if you fly in airlines that the ticket prices are quite higher, because airlines have to cover the additional costs for the people and everything else, but especially jet fuel.

Speaker 1

So is that going to be okay? Are people going to continue to pay these prices? I don't know. Then the last check item on Slide 17. Yes, these labor shortages pile up from mechanics flight attendants, you know, I'm sorry, you name it, and you got it.

Speaker 1

So and then the other thing that we'll throw in, which we haven't mentioned before, what about those ATC delays that we're expecting near this summer? I mean, big ones, I guess, some of the airlines are telling they need to cancel some of their flights because the ATC won't be able to handle it, particularly I heard the Northeast quarter. So that could be a factor. The $64,000 question, if the commercial aviation industry does falter, What are the airlines going to do? How would Boeing respond?

Speaker 1

How would Airbus respond? We discussed this before. I think they both want to keep going With the production rates ramp up, my opinion, not that I'm an expert, is that Airbus might be more capable of doing that, Boeing want to but may not be able to for their own reasons. Let's go on to Slide 18. And of course, even if Commercial Aviation Industry remains strong.

Speaker 1

The commercial aircraft industry still has to deal with its own issues. What are they? Labor, supply chain inflation, kind of a broken record, but these issues are not related to any One segment of the industry and not really related to 1 industry or one geography. There seem to be global issues. The silver lining, we've talked about this before, As fuel prices get more expensive, some of the airlines are looking to swap out their legacy gas guzzling airplanes for the more modern airplanes that are more fuel efficient.

Speaker 1

Let's go on to Slide 19. We've got to slow up here a little bit. We provide this slide every quarter, but pretty important stuff. GE Aviation Jet Engine Programs. So firm pricing LTA requirements contract through 20 29 with Middle River Aerostructure Systems, we call MRAS.

Speaker 1

They're a subsidiary of SDA Engineering Aerospace. I got to remind you, we do usually that what's going on here, why all these GE Aviation programs, What is SDA Engineering have to do with that? Okay. So I think you know, but I'll just remind you, if you forgot that Middle River used to be a sub for many, many, many years at GE Aviation and all these GE Aviation and we were put on all these GE Aviation programs. Well, Middle River was The sub of, Emirates' sub of GE Aviation.

Speaker 1

It was subsequently sold ST Engineering Aerospace, a large Singapore based aerospace company probably 4 or 5 years ago. But those programs continue before we're qualified in those programs. Just so you know, MRAS and SCE are asking for LIFO program. So our current agreement goes through 201029, they're asking for LIFO program. What's that mean?

Speaker 1

That means that We would reach an agreement under which we'll supply into that program until the program ends. So let's say the A320neo, you tell me when it's going to end, 2,045, I don't know. I mean, these programs go for a long, long time. That's how LIFER program works. It's on the factory.

Speaker 1

Yes, we finished that. It's in production. Sole source for composite materials for engine to cells and thrust reversers for these programs. The first five, let's call those the A320neo family. They all have the LEAP engines, the 7.78.

Speaker 1

So that program ended, but there's still spares actually for that program. Love that program. COMAC 919, that's COMAC is a Chinese company, 919. I'll Cover this a little bit more carefully just in the slide, because we don't have any of the discussion in the presentation about these programs. As I said, you can go back to the Q3 presentation or the company presentation, which is on our website if you want to get a little more detail on these programs.

Speaker 1

Coolmax is a Chinese company And the 9/19 is the designed to be the competitor for a single aisle airplane to be the competitor for the A320 and the 737 MAX. It's certified. They're starting production. I think they're just starting deliveries. So we'll see what happens with that program.

Speaker 1

ARJ21, that's another COMAC program and that's a regional jet and that's already in production and has been for a little while. And we have the Bombardier Global 7,500, 8,000 with the Passport 20 engines, those are GE engines. And That's a business yet, large business yet. Top right, Park Composite Materials. We're also sole source qualified as a primary structure component for the FAST 420 engines.

Speaker 1

That's not actually included in the AMREST LTA, but that's a part of it. That's actually GE program. And in the bottom right, fan case containment wrap for the GE9X engine for the 777X that's produced with Park's AFP Materials. It's not included in the Empress and LTA, but the Empress people told us they want to put it in the LTA. But remember, And it's important, there's a design risk with this program.

Speaker 1

The company that produces the fan case Is in the process of trying. They've done this a few times, so you could be a little skeptical about their ability to succeed. They're trying to redesign the fan case so that the case wrap will not be required. The case wrap is required in order to pass something called FBO fan blade out, which is an essential test that has to be passed. So the engine has to demonstrate that if a fan blade separates, It will be contained.

Speaker 1

It won't escape the engine compartment. Because if it does, It's extremely dangerous for the airplane. So that's kind of a non starter. You can't have that. That's the issue that the FBO test has to be passed.

Speaker 1

So I just want to mention that it's a program we're really excited about, but there is some design risk with that program. Let's go on to Slide 20. Just a brief update on GE Aviation Jet Engine programs. We're just going to cover the A320neo really, Update you on that. The rest of the programs we're not going to update you on.

Speaker 1

A320neo, we already said with the aircraft family with the CFM LEAP-1A engines, including the 319, 320, 321, 321LR, 321XLR, those variants. So Airbus recently, just I think about a week ago, reaffirmed their plans to achieve production rate of and delivery rate of 75 A320neo aircraft family deliveries Vermont by the end of 2026. I think they said they want to get to 65 by the end of 2024 actually. So will we get there? It's really hard to say if we'll get there by 26, but I would say I'm very confident it will get to 75.

Speaker 1

Why is that? Because they got 6,000 orders for these airplanes, 6,000 orders. So, when we skip down and talk about how their delivery history just for perspective. In 2019, these are monthly deliveries, 4720, 36 going down there 20, 21, 40, 22, maybe 42, 23 through April, 37. So So they want to get to 75, 65.

Speaker 1

They also said they want to be at 50 by the end of last year and they were for a couple of months in November December, But it's slipping back, now they're 37 for their 1st 4 months of the current calendar year. They have over 6,000 orders. This is a real problem. So you tell me how the supply chain is doing. If they had the ability to wave a magic wand and deliver 75 a month now, they would do it right now.

Speaker 1

The market is there. They have 6,000 orders. So you tell me, this is the biggest program in the history of aviation And they're not able to get to the race they want to get to. They're really struggling. So you tell me how the global supply chain is doing.

Speaker 1

People say it's getting better and It's really good. I don't know. These are facts. These are numbers. And Airbus is desperate to get their numbers up.

Speaker 1

So I think it's Good proxy for how the supply chain is really struggling. Just do the math here for a second. If they were able to get to 50 a month, That's 600 a year. That's 10 years. They got 6,000 in backlog.

Speaker 1

So in other words, if there are 50 a month, Not 75, not 40, not 37, then they need to give somebody 10 year lead time. When ordered at A320neo, good, 10 years. That's terrible. They can't get it's hard to get more business, hard to get more orders. So they're desperate to get the rates up to 75 60 five-seventy 5 and they're struggling.

Speaker 1

They're struggling. Do I think they'll get there? Absolutely, I think they'll get there. Do we in 'twenty six? I don't know.

Speaker 1

Maybe 26, maybe 27. I don't know when they'll get there. But my feeling is with lots of confidence that we'll get there. Why? Because they definitely want to get there, number 1.

Speaker 1

Number 2, the market is there. They have the orders. The orders are there. So let's keep going. Did I miss anything in this?

Speaker 1

Oh, yes. So This is important. Let's keep going in this slide because there's a point to this. So the A320 aircraft family offers 2 approved engines. One is the LEAP-1A engine and the other was a Pratt engine.

Speaker 1

We supply into the program using the LEAP-1A engine, So important to remember that. Now what's the market share between the LEAP engine, the CFM engine, the Pratt engine, 60% for the LEAP engine. And I believe if I recall there's over 11,000 orders confirmed orders for these engines. There's a lot of ballast, a lot of inertia in that market share. So let's say, PAD is a good month, CFM is a bad month, It's not going to change that 60% market share very much because there's so much balance in that in the order backlog already, so much inertia That the order backlog already that leads to that 60% market share.

Speaker 1

So assuming your 60% lead market share, 75 this is the bottom check item, 75 A320neo aircraft family deliveries per month. Ultimately, if you look at the stuff in blue, the language in blue at the bottom, that would translate to 10.80 lead benches per year. Remember that number, we'll get back to 10.80 LEAP engines per year. This is just math. If they get to 75 And that 60% market share is maintained and it's going to be hard to move that market share very much with that huge backlog, engine backlog.

Speaker 1

That's it. Just pure math. It's not my opinion, just pure math. 10 80 LEAP engines per year, keep that number in your head. So let's go on to Slide 21.

Speaker 1

Goodbye to the 747, the great queen of the skies. Yes, goodbye to the great 747 aircraft like none other. I like this photo. This is a few years ago. It's an anchorage.

Speaker 1

You can see there's snow on the ground, but it's kind of sort of a metaphor and maybe I don't shouldn't have to explain that to you. The airplane is going away. We're behind the airplane taking that's a 747, the windshield there and it's symbolic that okay, it's going away. So I think I think if you have to explain something like that, it's probably not worth it. 22, Slide 22, let's talk about the Q4 revenues with the GA aviation programs of $4,700,000 I think we told you when we did our Q3 earnings call About 4.25 percent, so we kind of came in, in that range, total of 22,300,000 For 2023, it's kind of a strange number.

Speaker 1

Look at on the left hand column, the top 20 was 28.9 $21,000,000 $13,200,000 Obviously, pandemic year $22,000,000 $26,500,000 down to $22,300,000 What's going on here? Are the programs going down? Of course not. Programs are they're trying to push their programs up anyway. It's all over the Short term, very erratic.

Speaker 1

It makes it quite difficult to fly into these programs. So you say they just it's unpredictable. The requirements for us anyway keep changing going up and down with not very good visibility might be a little bit of an understatement. What are we estimating for programs GE Aviation Program for Q1 $6,000,000 to $6,500,000 Even there's only about 2.5 weeks left In our quarter, we're still giving this little footnote that the risks regarding that forecast for Q1.

Speaker 2

Why Why

Speaker 1

don't we go on to Slide 23. Now here's Park's situation, not just GE Aviation. So we already went through the Q4 and number and the total number for fiscal 2023 total numbers. And we have a We're giving you of 14.75 to 14 correction, 14.75000000 to 15.25000000 sales for Q1 and Q1 adjusted EBITDA of $3,000,000 to $3,500,000 And again, look at the footnote because we have these risk factors. Another question you might ask is, well, if our sales are going to be, let's say, around $15,000,000 wouldn't our EBITDA be expected to be higher?

Speaker 1

And the The answer is yes, higher than $3,000,000 to $3,500,000 but the margins are under temporary pressure because these things we keep talking about inflation, supply chain, staffing and new plant. So that's why I think that we're looking at a little bit lower than you might expect EBITDA numbers based upon the sales numbers. Why don't we go on to Slide 24. Okay. This is now just towards the beginning of the meaningful part of the presentation.

Speaker 1

So we took a whole half hour to get here. This is our financial outlook for Park Energy Programs, let's call it a baseline outlook, because of ongoing significant challenges related to serious Supply Chain Disorder. I know it's a broken record. I keep talking about the same things, but these are very kind of powerful things for us. Inflation concerns and severe staffing shortages, It seemed to be a global phenomenon and a significant uncertainty as to when these challenges will moderate and abate, providing as a result, providing a year over year financial Forecast would involve much speculation and therefore would not be helpful for me.

Speaker 1

So like I was saying regarding the A320neo, for example, yes, I I think it will get to $75 per month. I'm pretty confident about that. But when really, that's anybody's guess. We can listen to what Airbus is saying, but that's really A target for them and they've moved that target back because they're struggling with the supply chain, already struggling. They're supposed to be at 50 or not a 50, 37th, I think I said 37th for the 1st 4 months of this year.

Speaker 1

These are real issues. These are not just people things people are complaining about. So although we can talk about where we're going, outlook wise, it's hard to pin it down year over year. And I think doing that would be guesswork and what's the point of doing that for you is not really meaningful But although it is not possible to predict with any meaningful confidence the timing of the abatement of such challenges, we're hopeful that the world survives the Crisis it is currently crises is currently facing, sorry for the sarcasm there, talking about like nuclear war, things like that. At some point in the not too distant future as the supply chain will reestablish some degree of water, inflation will moderate and staffing dynamics will normalize to some degree.

Speaker 1

As a result, we are providing in the following slides a revenue outlook for our GE Aviation Jet Engine programs and let's call it baseline financial outlook for Park Generally. Let's go on to Slide 25. What are the assumptions in doing these things and providing these outlooks? In providing the GE Aviation revenue outlook and the financial outlook for Park. These are the following assumptions.

Speaker 1

There's not a severe prolonged economic downturn during the outlook timeframe. That doesn't mean we're not if there's a recession, let's say, this year or next year, that's not what we're talking about. We're talking about the outlook timeframe. You could decide what year that is, 2026, 2027, I don't know that timeframe. The global supply chain returns to Some level of order and normalcy, inflation moderates, returns to historically more normal levels, staffing dynamics return to We're assuming that at some point, the world will get better.

Speaker 1

Let's go on to slide we'll skip on Slide 26. All right. This is where it gets interesting. GE Aviation's Jet Engine Program's revenue outlook. We gave you the building blocks for this analysis.

Speaker 1

I think in the last quarter, when we gave you the revenue per engine unit estimates, this if you look at these numbers, these numbers come from Q3 presentation. So the real question is Engine Unit assumptions and these are the assumptions we're using. You can put your own numbers in if you'd like. So unfortunately, we're going to have to go through some of the footnotes as well because they are Meaningful. Engineered assumptions per your assumptions is footnote number 1.

Speaker 1

Well, we already talked about this. A320 NIO aircraft assumption there is at 10.80. Remember I said keep it on your head, that 10.80 is based upon information we have from Airbus. The rest of The engine unit per your assumptions are things we came up with and we'll explain the basis of our the assumptions that we I think they're relatively kind of middle of the road, maybe even conservative. Let's go on a footnote to engine estimates based upon information from the customers.

Speaker 1

So these numbers, the engine unit revenue per engine unit, I should say numbers are come from our customer. That's not something we just came up with on our own. Let's see, footnote 3, we already talked about that. And then we're in footnote 3, I won't go through this, 3, 5, 6 and 7 through assumptions in terms of Whether film adhesive and lighting strike are used on these programs. And the assumptions could be a little conservative, but we're trying to be conservative.

Speaker 1

If we say we're assuming that, let's say, film adhesive is not going to be on this program or Lighty Strike is not going to be in the program, doesn't mean that it won't happen, doesn't mean that We're not working on it happening because they have to get those products have to get approved by the OEMs. They have to be certified by the OEMs. But we're trying to be conservative in this outlook. So Let's go through the individual programs, Passport 20. So we're assuming 90 units per year that actually has been something that was actually information that was given to us by our customer.

Speaker 1

But it's I think relatively middle of the road. They've been doing about 40 airplanes per year or so, 2 engines per airplane. So I think 90 is a reasonable assumption. C919200, that means 100 airplanes. Well, how do we come up with that?

Speaker 1

Well, No, Airbus for the A320, remember the 919 is a single aisle competitor. Airbus wants to be at 75 airplanes a month, Boeing wants to be at 50 airplanes for a month at 600. So in the 737 MAX, Boeing wants to be at 600. Airbus wants to be a 900 for the A320neo. We're assuming 100 airplanes, 200 engines.

Speaker 1

We think that's Actually relatively conservative assumption and it really is probably driven mostly by supply chain because the Chinese control the market. And obviously, the Chinese want this aircraft to be a success and they'll control who buys the airplanes and who doesn't buy the airplanes inside China especially. ARJ21, that's not too complicated. Last year, there were 26 airplanes that were delivered, 2 engines per airplane, So we assume 50. At GE9X, we're not giving you the details here.

Speaker 1

We have them, but we're trying to keep this program a little more confidential. So obviously, if we fill in either of these blanks, you'd be able to do the math and figure it out. We're trying not to do that. But I would say that Well, the revenue per engine unit, that's something we know from our customer. The engine unit per your assumptions, we're being pretty conservative here.

Speaker 1

And remember, there is a design risk of this whole $6,500,000 number can go away. We had everything up And we got to this $50,625,000 number. Just to remind you, I want to remind you, Fiscal 2023, the number is $22,300,000 So there's a significant amount of incremental growth expected from the GE Aviation JetEdge program. Again, we call it outlook because we can't exactly give you what year it is. But, there's A320, as I said, a lot of confidence The other programs, we don't we think we're being middle of the road and maybe even conservative.

Speaker 1

This is just math after We decide what end unit per year assumptions to put into the table, this math, dollars 15,562,000 So like I said, a lot of incremental Growth Expected from the GA Aviation Program. So let's go into Slide 27. This is where it gets even more interesting and we'll have to slow down even more to cover this properly. So Park Aerospace Corp. Baseline financial outlook, just for the company, is principally based upon growth So we're not talking about new programs we're trying to get on.

Speaker 1

These are programs we're already sole source qualified on. So we're going to have to go through the footnotes. Let's start with the first line base year, dollars 54,100,000 11,500,000 Those are just the numbers for fiscal 2023, which you already have. Estimated GE program incremental sales, you look at footnote 1, 23 number and there is the incremental number $20,300,000 Then the next item, estimated incremental sales for ADL, ADRS program, PAC-three missile System Kratos Apt 3 unmanned aircraft $20,000,000 So we're not giving you a breakdown and that's really just want to protect the confidentiality of these programs. We have the information, but we don't feel comfortable sharing that with you.

Speaker 1

So I just saw with you at this time making those assumptions public. But we feel those assumptions kind of middle of the road, maybe a little conservative. Non GE program incremental sales 8,000,000. If you read the footnote, what we're basically saying is there were about last fiscal year of 2023, there were about $32,000,000 of sales for non GE Aviation Programs. And we're saying by the time we get to the outlook year, it will be 25% growth.

Speaker 1

So $32,000,000 times 25 percent, that's $8,000,000 of incremental sales for the non GA aviation business. We think that's a fairly conservative estimate and we get the estimated revenue outlook of $110,400,000 on approximately $110,000,000 We get the outlook here. Now let's talk about EBITDA. We started with $11,500,000 then estimated EBITDA contribution from incremental revenues. If you look at the footnote, We're just saying okay, we take 110 minuteus 54, those are the incremental revenues, we multiply that by 37%, which we think is a proper contribution number based upon our historical financial data and performance.

Speaker 1

So we think that's a pretty reasonable middle of the road number, dollars 20,800,000 Adjustment to base year EBITDA, You can look at the footnote, but at $2,500,000 I referred to it earlier in the presentation, we're saying We have about a $2,500,000 impact in our current fiscal year, sorry, let's say, to staffing issues and now of course the cost of new plant. So we're saying these things are going to go away long term. Inflation, we hope will moderate. Our pricing will catch up on inflation. Staffing shortage, we hope will moderate.

Speaker 1

Supply chain issues, we hope will moderate. So we're making an adjustment because We think our P and L in fiscal 2023, the baseline EBITDA of $1,500,000 was burdened by these factors, which we think are going to improve significantly. We get to an estimated EBITDA outlook of 34,800,000 Okay. So that's just doing the math here. And remember, this is just an outlook.

Speaker 1

This is not a forecast. We're not taking into account Any new programs that we're working on, only things for sole source qualified on already and taking that baseline number of 32,000,000 increasing it by 25%. So let's go on to Slide 28. I don't think we need to go through the individual Footnotes because I think we already kind of talked through them. Yes, we did talk through them.

Speaker 1

If you have any questions about the footnotes on Slide 28, Let us know, but Slide 29, this is an important one. This is footnote 6. The above outlook analysis is not A forecast as it only considers the estimated growth of programs on which Park is already sole source qualified plus a 25% growth of non GA program sales by the outlook year. As we discussed, the analysis does not consider any other revenue Including, for example, these are just examples. This is not exhaustive, at least these are examples.

Speaker 1

Revenue opportunities related to the AFP manufacturing project we've discussed for the last couple of quarters. The company's new film adhesive product line, which we just introduced, No sales for that, 0. The Asian JV the company is discussing now with 2 separate large aerospace companies, a potential new product family JV, which the company is discussing with a large aerospace company. A large aerospace program in which the company's composite materials are a finalist of Structures, Assemblies and Integrations project, which the company is in serious discussions with an existing customer. A technology license arrangement under discussion with a large OEM, several rocket and missile programs with respect to which the company's products are under qualification.

Speaker 1

These are examples, like I said, non exhaustive list. But I just wanted to understand, we're saying it's not a forecast because if we're doing a forecast, we would take into account These new opportunities and try to figure out, okay, how many of these we're going to get, how many we're not going to get. That was not the purpose of the exercise. We wanted to give you a baseline outlook. I'll explain a little while why we did this, because originally we did this related to the dividend decisions that we made a couple of months ago.

Speaker 1

Let's go on to Slide 30. We're going to change gears here a little bit. We've got to rush now. We're running up against 45 minutes. So we did a news release on this, so you're probably aware of it.

Speaker 1

Our major expansion in Newton, Kansas is complete. New facility was qualified and approved by MRAS for production April 5. If you look at the photo here, it's a nice little group photo of people from MRAS, SDE and Park. This is when they visited on April 5 to review the new plant approval and approval was actually given at the time during the visit. So it was a very happy little visit we had.

Speaker 1

First production run didn't fall too long after that was April 19th. The expansion cost $20,000,000 which I think you know about. It has been a long and winding road since we broke ground on a new facility On August 15, 2019, we made a job, it's done, well done Park People. Of course, when we broke ground, we didn't know that was The pandemic was around the corner, so it made it much more challenging. We never slowed it down from our side, but obviously it was much more difficult to get the job done.

Speaker 1

We have a construction crew. You remember how it was at the beginning of pandemic. 1 guy who tests positive, the whole crew has to go home for 2 weeks. One guy on their crew and for COVID, of course. Let's go on to Slide 31, another new event.

Speaker 1

We recently announced Our Arrowhead here, sorry, I got to pronounce that right, FAE350-1 Structural Thermal Easer product. This is a new product offering for Park. So we announced this on May 9th just recently. It's used for use in bonding of aerospace primary and secondary structures. So Film adhesive is used in the production of composite structures.

Speaker 1

The main component is the composite materials, the pre prigs that we reproduce, But film adhesives, not the same quite volume, but still significant are used in producing these composite structures. So the key thing is the customers, Really all of them, I think, that buy a composite materials also use film adhesives to build to produce the composite structures that they produce. So Arrow Adhere, FAE350-1 is a 350 curing epoxy based formulation and it's suitable for all these applications. And why don't we go to the last item, the introduction of our new AeroAdhere product It's an important milestone for Park as it represents a first offer in a planned major new adhesive product line with more in the works intend to come. So this is a big deal.

Speaker 1

This is kind of a whole new area for Parq, even though it relates to construction and composite structures. We're a company that has been producing sorry, Prefect Materials, Composite Materials or Composite Structures including lighting strike materials on that as well and now we're into film adhesives, which is a big leap for Parq and a big top line opportunity for us as well, I would think. Let's go on to Slide 32. Okay, changing back to the number kind of stuff, changing gears again. And well, there's a reason for this, we'll get to that in a minute, analysis of Park cash and gas application.

Speaker 1

So Let's just kind of go through this math here a little bit. Dollars 105,500,000 that was our cash that was just reported as of the end of the fiscal year. The transition tax installment payments remaining $12,500,000 We spoke about this many times and that's payable I see what those footnotes say through $20.25 per share dividend that we just declared and paid $20,500,000 So the solution treater project for solution treater for the ADL project, if we do it, that would be $6,000,000 The AFP project, If we do it, that's $10,000,000 We haven't made a final decision on those things, but I'd say it's more likely not. So we add all the things up $49,000,000 We $49,000,000 for $105,500,000 We end up with $56,500,000 That's a conceptual computation, but it's basically saying, look, this is kind of like how much cash we have left after we take care of all these things, 56,500,000 That's an approximation. So let's there's a reason for doing this and I'll get to that in a couple of slides.

Speaker 1

Let's go into Slide 33. Park's balance sheet, cash dividend history and thoughts about capital allocation. So got to remind you, we have 0 long term debt, very pleased about that. Our cash dividend, So while others cut or canceled their dividends, we maintained our $0.10 per share regular dividend throughout the pandemic. Park has now paid 38 consecutive years of uninterrupted regular cash dividends without ever skipping a dividend or reducing the dividend amount.

Speaker 1

On February 9, 2023, our Board approved 25% increase in the company's regular quarterly cash dividend going from $8,000,000 to $10,000,000 per year. Well, why do we do that? So let's go back to Slide 27 because that's kind of why we did the analysis that we did in Slide 27 originally. This is done with something we reviewed with the Board with a little bit more detail provided of course. And When we saw that our outlook for EBITDA and our forecast was about $35,000,000 we felt Very comfortable increasing our regular dividend to about $10,000,000 from $8,000,000 to $10,000,000 per year.

Speaker 1

And one could have taken a position or argue that we could have done more, but since Park tends to be a conservative company, we just said, okay, we'll go to That $10,000,000 or $0.125 per quarter, a regular dividend, and we always could do more later if we want to. But see, this is really why we originally did the analysis on Slide 27 was for the Board to consider whether we to be changing our dividend policy. Now at the time, what we reviewed with the Board was more detailed than this, but this is basically the kind of analysis that the Board used to make the decision. We've had a long run with a regular dividend back to Slide 33 I don't intend to disrupt that, Ron. In other words, the point is that we feel very comfortable increasing the dividend that we're not going to need to reverse at some point.

Speaker 1

Let's go on to Slide 34. Again, just continuing with Park's balance sheet, etcetera. So on February 9, same date, Park's Board also declared special dividends of $1 share total amount of approximately $20,000,000 which was paid already paid on April 6, so that money is gone. Why do we do that? Now let's go to Slide 32 because there's a reason for Slide 32 as well.

Speaker 1

This is the analysis that We reviewed when we made the decision, the Board made the decision to pay the special dividend. And we felt that Actually, we spent a lot of time in this and we had a device from outsiders, investment bankers, did a very careful evaluation. But we felt that this number, this kind of concept number, dollars 56,000,000 let's say, is a proper number for Park. We felt comfortable with the $20,000,000 or $20,500,000 $1 per share dividend. And that was based on a pretty serious thoughtful analysis, So I must say, what about M and A?

Speaker 1

So good question. We're not giving up on M and A. We're still looking at M and A, but I think we've concluded that M and A is probably Less likely opportunity for the expenditure of our cash than maybe we originally thought. Why is that? Because There's 2 types of things we're looking at.

Speaker 1

1 is something comes to us. It's usually an auction that's being handled by an investment banker. If you look at a number of these things And the prices that are sold for are these companies are sold for are significantly more than we would be willing to offer a bid. And we don't feel any regrets about that. We think the world is insane and we're sane.

Speaker 1

We feel fine. We don't have any regrets, fine about the valuations we came up with. But the outside world has a different opinion and we're not going to chase those kind of values. So that's a little bit of an issue with The companies that are auctioned, of course, when companies are auctioned, they're not exactly what we want anyway. There's the company that is for sales brought to our attention by an investment banker.

Speaker 1

The other thing we'd be looking at is companies we target, we go after that are not necessarily for sale. That It's a little bit of a different kind of problem, which is that if the owner isn't willing to sell or isn't willing to sell at a price that We think it makes sense then, it's not going to necessarily happen. So we're not giving up on M and A. We're just looking at another opportunity now in the last couple of weeks that we're just starting to look at. But I guess a little less optimistic that we're going to have an outlet for our cash with M and A.

Speaker 1

If we find something, would we be willing to finance? Sure, we'd be willing to finance if it makes sense for Park. So The good news though, and this is I think the main point that we should make is that even though we may not be investing and companies via acquisition, maybe we will, but may not. There are many opportunities, very attractive opportunities that are Our way to invest in some of those were listed on that slide, that footnote 6, the slide regarding our Outlook. Those opportunities that we're saying were not taken into account in the outlook computation and many more.

Speaker 1

These things are coming our way actually. And why? Is it just luck? I don't know. Maybe it's because we paid a lot of dues and sacrificed a lot and overcame much So that we're positioned now, we've earned that right, to have these opportunities presented to us.

Speaker 1

And what I would say is the ROI on these opportunities For let's call it internal investment on programs or projects are usually much, much, much more attractive than the potential ROIs on the acquisitions by orders of magnitude sometimes. So that's the good news is that we're not out of opportunities for that's quite the opposite actually, but I think our focus is going to be on a different type of opportunity at this point. The $56,500,000 number, we're comfortable with that number. We think it's okay. And we think that we'll be able to take advantage of some of these other And like I said, if we feel we need to finance an opportunity, we'll be willing to consider that as well.

Speaker 1

So just continuing back on Slide 34, Park has now paid $583,000,000 over $28 per share in cash dividends since the beginning of 2,005. Our thoughts about cash and capital allocation, no Buck's, No Buck Rogers, that's a Tom Wolf thing from the right stuff, you have the right stuff. So our version of that is no capital, No capital allocation. Somewhere along the way, someone has to generate the capital or there will be no capital to allocate. So there's a lot of talk about capital allocation and it's all fine.

Speaker 1

It's good. I'm not criticizing it. But it seems what's missing sometimes is, well, you have to generate the capital. Somebody has to do that and that's not something that's easily done by discussion at a business school that requires as far as we're concerned, Hard work and sacrifice. Let's go on to Slide 35.

Speaker 1

How about Park? How's Park done in terms of generating capital? Well, how are we done? The company started by 2 guys in a garage in Woodside, Queens in 1954, which is a few bucks they left over for war duty. Basically, they started with no money.

Speaker 1

Nobody ever gave us anything, nothing I can remember anyway, no, nothing special, but we've paid that $583,000,000 in cash dividends since 2,005, So that somebody at Park must have figured out how to generate capital over the years. No capital, no capital allocation. So the fact that we generated makes the discussion about capital allocation meaningful and relevant. We hadn't generated capital, nothing to talk about. Let's not forget that part of the equation.

Speaker 1

Slide 36, Park family, culture, eat strategy for breakfast, that's a Peter Drucker thing. So at Park, we have a strategy too. We're not downplaying strategy, but it is our Park family culture, which makes us strong and allows us to endure. How do we generate capital at Park? We generate capital.

Speaker 1

How do we generate lasting value at Park? It's through dedication, through sacrifice, through perseverance. I'm not sure these things are really taught in these elite business schools. The capital allocation part of it might be taught, But how do you generate capital? This is how we generate capital anyway.

Speaker 1

And you have to judge whether we've been successful. I think we have been, But that's my opinion. Because of our ongoing staffing shortages, our film line and tape line people have been working 60 or more hours for week in and week out for over a year now. It's not only film and tape, but we're focusing on film and tape at this point. This is how we generate capital at Park.

Speaker 1

Let's go on to Slide 37. So why do our people do such things? Why do they want to work 60 plus hours per week, week in and week out? How does that work? 5 days, 12 hours.

Speaker 1

So there are 2 shifts, 2 crews day and night. So we got pretty much 20 fourfive coverage on those to machines, critical machines, the hot melt machines, film and tape. So maybe why do people do such things? What, we're nice people or something like that. We say nice things.

Speaker 1

Maybe it's because Do you know that came from Abraham Lincoln? I didn't know that. I looked it up and apparently he's the one who first coined that phrase. It's a good one. So when we just what everybody is laying off their employees at the beginning of the pandemic, remember that, in some cases by the 1,000.

Speaker 1

We at Park laid off nobody. We kept all of our precious Park family people even though we were told we were crazy to do so. So we're in aerospace. Remember, the planes were flying, which you saw proud pictures of it, 1 or 2, 3 people. Most of them were just Park and not flying at all.

Speaker 1

So the industry was in terrible shape. I mean, it was just was almost collapsed, No, the aircraft industry. But more than that was the fact that there was this great uncertainty about What was going to happen? We all remember that. People talked about Armageddon at the end of days.

Speaker 1

So, yes, things are really bad, but what was going to happen for the future? And a lot of people gave into fear and I don't blame them. And they dramatically reduced costs, laid off lots, lots of people. There's this thing George Patton said, don't take counsel of your fears. I think that's the correct quote.

Speaker 1

But we didn't take counsel of our fears and we didn't lay anybody off. Somehow we decided we're going to stay with our people and that's the last thing that we go. And remember the vaccine mandates where we were being pressured, pretty heavily pressured to fire our people, dare to defy the mandates. What do we tell our people? We said, no, we're not going to fire you.

Speaker 1

It's up to you whether you get vaccinated or not. We didn't tell people that they need to get that. We didn't tell people not to get vaccinated. We're against vaccines, But we told people, no, we're not going to do it. As a matter of fact, we said, we're not going to fire you.

Speaker 1

As a matter of fact, we said in writing over our dead body just to make sure that they understood we're not fooling around. And I meant that. I wasn't I meant that literally over a dead body. If you want other culture, which has any real meaning of power, You better be willing to live and die by it. People have cultures, they have nice PowerPoints that some PR firm does to present a culture, but it's meaningless Unless you're really willing to commit everything you've got to, in my opinion, otherwise it's a waste of time and it's silly.

Speaker 1

Our people remember those things, I suspect they do, And actions speak louder in words. So that may be why our people are so dedicated, at least example as to why our people are so dedicated, because we've demonstrated with actions, not words, How important they are to us and how dedicated we are to them. Let's go on to slide our last slide. We're just finishing up within an hour. Slide 38.

Speaker 1

If you want your people to love your company, you better love them and it better be true love also. You can't fake love. Our people are family and we don't turn our backs on family. Peter was right. So here's a picture of Our dedicated film line and tape line crews.

Speaker 1

These are wonderful, wonderful people. I really was very pleased when I asked Corey to take a picture of these guys, These guys and gals during shift change, that's the only time we can get most of them in one photo. It's Truly an honor for me to be able to work with these people. And actually, I was a little emotional. I got a little emotional when I saw this picture because They look so happy, you know, and they're working so hard and there are so many nice smiles on their faces.

Speaker 1

So that meant a lot to me. I don't know if it means anything to anybody else, but So, okay, thank you very much. We got 1 hour and 1 minute. We're done with our presentation. So operator, if there are any questions At this point, we'd

Speaker 2

be happy to take them.

Operator

Thank you, sir. We will now be conducting the question and answer session. One moment please while we poll for questions. And the first question comes from the line of Nick Riposkela with NR Management. Please proceed with your question.

Speaker 2

Good morning, Brian and the team. Can you hear me okay?

Speaker 1

Yes, I hear you fine, Nick. Yes, thank you.

Speaker 2

Great, great, great. Just a couple of questions. If you could just give a little update and your thoughts on what's going on with China and the COMAC program, just really haven't heard much about in the Press about that lately. Secondly, you've again laid out how Park is really a U. S.-basedgrowthmanufacturing concern.

Speaker 2

That's the way I look at it. I look at it as a growth stock based on the outlook. And so if we were to have some stutter steps here, would you still have an appetite for share repurchase if Mr. Market became silly at some point and the equity were to become depressed. And then finally, Anne, this may be a stupid question, if there is, do you have any thoughts on the removal from the S and P Index.

Speaker 2

I know that's out of your control. If you have any thoughts on that, it'd be appreciated. Thank you so much.

Speaker 1

Okay. Thanks, Nick. Come back, yes, you know, it's funny that Chinese are not as transparent or opaque. And we follow You probably see the same things we see and we haven't seen much in terms of updates to the programs. The programs are progressing now from our perspective in terms of Material requirements.

Speaker 1

The AirTree 21, that's at this point really an aircraft that's in full production. I don't know if it ramp up to higher rates. As I said last year, I think they did 26 airplanes. So it's a small program, that's a little meaningful program for us. And it's also targeted for approval of our LSP product, which we'd be very happy about.

Speaker 1

The 9/19, that's obviously the big one for Chinese is a real prestige program. They're going up against the 737 and A320, as you know. We'll have to see what happens. I haven't heard any recent I would just go back to what I've said numerous times, which is that this is a big, big, big prestige program for the Chinese. And my bet is that they're going to do everything they can to make it successful.

Speaker 1

Let's see, you had a comment about our being a Gross stock and let's see, I don't remember what the question was there, but you did also you can remind me, but buyback, you asked about buybacks. Yes. So, is the market going to make us another offer we can't refuse? Yes, we're very open to doing buybacks. And I guess maybe you're tying the growth outlook to buybacks, maybe that was the question.

Speaker 1

Yes, so actually something that We are thinking about something on our radar screen considering especially like I think what you're suggesting the outlook Is our company valued properly? Probably not. And that actually ties into the mover from the S and P, Small Cap Index. We're giving no notice about it. You read about it probably the same time we read about it.

Speaker 1

It was very disappointing. Somebody made a comment, which I didn't really appreciate too much that well that we were deleted from the S and P index, small cap index, Because we have because our market cap hadn't increased as much as it needed to or hadn't increased very much or something to that effect. And I thought it was well, okay. Of the companies in the S and P Small Cap Index, how many pay cash dividends? Okay.

Speaker 1

2nd question, although to which my guess is not too many, these are small companies generally don't pay cash dividends. 2nd question, Of those companies in a small cap, S and P Small Cap Index, which do pay cash dividends, how many of you paid $28 of cash dividends per share since 2,005, because obviously that has a big impact upon the value of the company. So very disappointed. We had increased our dividend, regular dividend and that seemed to drive the stock price up quite a bit to I think the equivalent of high 15s, you should take into account the $1 special dividend, maybe $15.80 or something like that. And then We did the then the deletion occurred.

Speaker 1

We had no notice about it. And the stock went back down to where it was. So we have no control over it, just disappointing to us. What we're going to say is not fair, of course not. We've been in touch with S and P.

Speaker 1

They've been very polite and very nice and they're not very transparent about how they go through these decisions. But obviously, it wasn't We wanted, but we just have to keep going and we'll see what happens. I don't know if we have a chance to get back in the index, But that's not really our main objective. Our main objective is to realize the goals for Park. And Nick, did I miss anything?

Speaker 1

Did I cover all those questions?

Speaker 2

Yes. No, that's pretty good. Thank you so much. I appreciate it. And keep up the good work.

Speaker 1

Thank you very much, Nick.

Operator

And the next question comes from the line of Matt Spiel with GWK Investments. Excuse me. The next question comes from the line of Brian Glenn with Olcott Square Investment Partners. Please proceed with your question.

Speaker 3

Hey, Brian, thanks for the always very thorough walk through.

Speaker 1

How are you doing, Brian?

Speaker 3

Good.

Speaker 1

Good.

Speaker 2

I

Speaker 3

have a couple of questions. So the first is on the MRAS, which I know was 3, 5 5 years. And so are you able to discuss and you probably can't go into detail, but to discuss The mechanisms for the reprice, which I think, correct me if I'm wrong, would be 2025.

Speaker 1

That's the cast in concrete. Yes, we have a price increase that go all of our pricing goes up beginning of calendar 2025. That was part of our 10 year LTA. So that's kind of built in. Now when we did the 10 year LTA, we were using an inflation assumption of maybe 3%.

Speaker 1

The raw materials, we have LTAs from our suppliers on the raw materials, Except for one where there's a kind of a risk sharing arrangement for 1 of the raw material components. But it's really a non raw drill area of our cost that we are at risk for. We assumed about 3% inflation year over year And obviously that has not been the case in the last like 12 months or so. So that's where we have the risk. And the price increase that goes into effect January of 2025, used that 3% assumption.

Speaker 1

It's not I just want to be clear, it's not an index. In other words, it doesn't change based upon What inflation what happened to deflation, I'm just saying when MRAS and Park negotiated the agreement, we agreed that we would assume

Speaker 3

And then my second question, it's twofold. I guess, there's a lot of talk on the impressive dividend record and it certainly is impressive and large and respectable and appreciated. Does the Board to the extent you can share does the Board Have discussions around total shareholder return at all? Or is it mainly just around dividends? And then Related to that, is there anything I know a lot of people have asked over the last few quarters years about dividends versus buybacks.

Speaker 3

Is there any other factors that would influence that decision related to you or the Board's preference For amount of shares outstanding, trading liquidity or anything like that or ownership interest that may bias you guys one way or the other or is that just not a factor?

Speaker 1

So Brian, it's all a factor and maybe I didn't explain it that well, but when we went through the analysis to where we decided to do the $1 dividend and also the increase in our dividend. We had discussions about all those things, total shareholder return, buybacks, No M and A investment using our cash for internal investment. So I wouldn't there's nothing that's off the table. Everything is being Everything is being evaluated in our discussions, all these things are considered. So if I implied that it's only a one track You know only about dividends, I didn't mean to do that.

Speaker 1

Probably the reason we focus on dividends in the presentation is because we have the recent increase in the regular dividend and also the special dividend.

Speaker 3

Understood. Okay.

Speaker 1

Yes, Brian, let me just say, I just want Say again. So I think the Board is pretty sophisticated about this stuff and if there's some belief that's not, I think that's not correct at all. But in addition to that, we do get regular advice from outside experts, investment banking people that are the tops of the firms like CEO levels, present levels at their firms. So I think we're well advised and I think we're well aware of all the factors that you mentioned in terms of total shareholder return.

Speaker 3

Yes. Yes, understood. I mean, I think if And this is just me, but if you look at your outlook and maybe that's hit one day, maybe it's not. I understand it's not a forecast and there's a lot of levers there. It Seems to me that there is substantial return that could be realized over time by retiring a share And possibly higher than the return on assets or return on invested capital rate of the firm historically.

Speaker 3

And I know that's changing with the footprint in the new plant coming online and some of the internal projects. But that's just my own observation and Yes, just something that I believe to be true. But I do appreciate you doing this walk through. It's always appreciated and I find the level of detail you guys put into this presentation extremely helpful and appreciated.

Speaker 1

Okay. Well, thank you very much for your input, Brian. Thanks again.

Speaker 3

Thank you.

Operator

At this time, there are no further questions. And I would like to turn the floor back over to Brian Shore for any closing comments.

Speaker 1

Okay. This is Brian again. Thank you very much for everybody very much for listening again. These calls are I try to Make them quick and I try to rush through these things a little bit, but I end up going forward in an hour. So I appreciate you hanging in there.

Speaker 1

And feel free to if you have any follow-up questions, feel free to give us a call and feel free to give Matt or me a call. Otherwise, we'll be talking pretty soon because our Q1 report is at, I think, the beginning of July. Thanks and have a great day. Bye.

Operator

Thank you, everyone. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Park Aerospace Q4 2023
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