Park Aerospace Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
October 15, 2024

There are 3 speakers on the call.

Operator

this time, I'd like to turn the conference over to Mr. Brian Shore, Chairman and Chief Executive Officer. Thank you. You may begin.

Speaker 1

Thank you, operator. Hello. This is Brian. Welcome to our fiscal 2025 Q2 investor conference call. Nice to have you on board.

Speaker 1

With us today are Matt Tharabaugh, our CFO and also Mark Escoball, President and CEO. Well, we announced our earnings through news release right after the market closed. If you don't have that, you want to get access to that because in the earnings release, there's also instructions as to how you can access the presentation that we're about to go through. The presentation is also on our website. You want to have that up or the in order for the discussion to be more meaningful.

Speaker 1

After we're done, as the operator told you already, after we're done going through the presentation, we'll be happy to answer questions. So why don't we go and get started? Why don't we go to Slide 2, our forward looking disclaimer info. Let us know if you have any questions about the forward looking disclaimer language. Slide 3, our table of contents.

Speaker 1

Beginning in Slide 1, we have our investor presentation. Then we also have supplementary financial information attached as Appendix 1 at the end of the presentation. We don't intend to discuss that at this time, but if you have any questions about the supplementary financial information, let us know. Here we have picture, the clearest picture of Mercury ever taken, quite a beautiful picture in my opinion. Thank you, James Webb Space Telescope, obviously taken by James Webb Space Telescope.

Speaker 1

And as many as you know, our proprietary Sigma structure incorporated into the structure of the James Webb Space Telescope. So that telescope has a special place in our hearts. Let's go on to Slide 4, the quarterly results. When we focus just on the right hand column of Q2, dollars 16,709,000 sales, dollars 4,000,000 of $757,000 of gross profit, dollars 3,204,000 of EBITDA. Quickly, what do we say about our Q2 during our Q1 investor call?

Speaker 1

We said the sales estimate $59,000,000 to $16,400,000 So we came in just a little tad above that. Adjusted EBITDA estimate, we gave you $3,300,000 So we came in right within that range. Let's keep moving here. Slide 5, please. Continuing with quarterly results, offer some considerations for Q2.

Speaker 1

There was approximately $2,200,000 of Aerion Group rate carbs, C2BNG product sales during Q2 under parts business partnership with Aaron Group. We talk about this often. This is the fabric that we purchased from Aaron Group for ablative programs, for missile programs, and we then sell it to the OEM customers. Turnaround pretty quickly within a couple of weeks. Quite low margins, it's really a markup, but we always say, well, don't worry, there's one we actually produce the product and make the ablative materials, that's where the margins are quite good.

Speaker 1

But by comparison, there was only 750,000 of ablative material sales during Q2. So you see the little bit of an imbalance there, much more emphasis on the low margin part of the equation, less emphasis on the higher margin. Eventually, it all comes through, of course. There were significant ongoing expenses in Q2 related to bringing Park's new production facility fully online. You know all about this, including expenses for depreciation.

Speaker 1

Let's just stop there with the asterisk, dollars 12.60 sorry, dollars 1,260,000 per year of depreciation expense related to the new production facility. This obviously does not affect EBITDA by definition, but it's important, but it does affect gross profit and gross margin, approximately 2% impact on the gross margin just from the depreciation. And if you look at the gross margin in Q2, what was it, I think, 28.5%. Was that the number? Let me quickly make sure I'm telling you the right story at 20.5%.

Speaker 1

We always said we'd like another 30. Just depreciation alone would bring it above 30. But it's not just depreciation. There's all this other stuff. And this other stuff is also included in the EBITDA or affects EBITDA, facilities, maintenance, utilities, insurance, other overhead expenses and expenses related to additional park people, all related to the new facility.

Speaker 1

These additional expenses, I thought this was an accident or a problem. These are planned expenses. I just want you to understand that required to bring the new facility fully online in order to meet the needs of the coming juggernaut and quotes, which is described later on in the presentation. So it's all part of the plan, but nevertheless, these items are going to hold down our P and L and our margins until that facility is ramped up. And right now, it's very underutilized, but we're doing it intentionally because we need to get going with that facility so we can meet the needs of the juggernaut and not get behind the power curve.

Speaker 1

Slide 6, total missed shipments in Q2, 600,000. That's not a great number. Was by international shipment issues, supply chain, customers on hold, other miscellaneous issues. Yes, so the aerospace industry, not really a happy place right now, a little more difficult, a little more challenging for us. We got wars as well that are factors, especially when you talk about international shipments.

Speaker 1

There was no impact though on Q2, the sales and our earnings from the storm damage except for the 64,000 sorry, I got that like dyslexic thing there, dollars 46,000 of expenses reported as a special item in our Q2 earnings release. So other than the $46,000 no impact from the storm damage on Q2 earnings of sales. All production lines were fully operational and functional throughout fiscal Q2. And that's quite remarkable. If you remember, the storm happened in the last 2 weeks of Q1.

Speaker 1

So for the all lines to be fully operational throughout Q2 was quite remarkable, really a miracle, quite an achievement by our people, I must say. Let's go on to Slide 7, top 5, we do this every quarter, top 5 customers alphabetically. Aerojet, Rocketdyne, these are the kind of usual suspects. You're probably bored hearing these names. They're involved with the factory missile system, AeroSpheres, they're a rep for IAI, Israeli Aerospace Industries, which is a very important customer of ours, and they produced the G280 for Gulfstream.

Speaker 1

GKN, that relates to the Boeing 77. That actually is not an airplane, it's the Gen X-1B engine that used to use in airplane. Kratos, and of course, when we talk every quarter, they were in the top 5, I think. And we just select one of their aircraft. This time, it's a BQM-seventeen seventy eight.

Speaker 1

Quite interesting airplane, if you want to look it up on the Internet. Middle River Aerostructures, yes, they're kind of the usual suspect. And MRAS, we chose the Bombardier Global 8,000 represent them. Let's go on to Slide 8, estimated revenues by Aerospace Market segment, the pie charts. What's interesting to me is look at 2022, 2023, 2024, 2025 year to date, the part chart really very, very similar.

Speaker 1

But the big difference is 2021 and that was the pandemic year when particularly Commercial Aerospace was very much, I don't know how you say it, I mean, in jeopardy, almost looks like it might not make it. Let's go on to Slide 9. This is the slide that Elena does for us. Elena is the Head of Customer Service every quarter. She comes up with really interesting cool programs to put in this little slide.

Speaker 1

The pie chart, this is for the 1st 6 months. Rain arms, rocket nozzles, drones, those we consider to be niche markets in military. But for us, even our aircraft structures is niche. Current programs quickly, David Clark, not a huge customer, but we love that customer. They make the helmets for the Air Force and we supply materials.

Speaker 1

We also do kitting for them, which is nice. And then we got the MK30 canisters for Raytheon ESS system, that's ablatives. The MK-one hundred and twenty five warhead for the SM-two, SM-six, those are hypersonic missiles, I think. And that's actually not ablatives. In this case, it's one part of the structure.

Speaker 1

We can't say anything more about it. The MK-forty one, a vertical launch system, that's actually parts that we produce with our materials. It seems like Elena was really focused on the missiles this quarter. So she must have maybe become a lot of dreams of missiles, I guess. So let's go on to but nice selections.

Speaker 1

Thank you, Elena. This one is Slide 10. GE, Aerospace, Jet, Energy Programs, another slide we give you every quarter. You have to understand, some of you complained about we go over things too much. There are new investors that dial in every quarter.

Speaker 1

We have to be fair to them too. So we try to strike a balance here. So yes, we include the slide every quarter. Firm pricing LTA, it's a requirements contract from 2019 to 29 with MRAS, which is a sub of ST Engineering Aerospace, a large Singapore aerospace company. We built a redundant factory for GE actually in MRAS that's in production, you know that.

Speaker 1

So what's going on here? Was sole source qualified for the composite materials for the cells, thrust reversers? On these programs, you know it's all GE engine programs. Why is that? The reason is that when we entered into the LTA originally, MRAS was a sub at GE Aerospace.

Speaker 1

So we've done all these GE Aerospace programs at that point. And then subsequent to that, GE sold MRAS to ST Engineering, but we continue on these programs. So let's go on to and I'm not going to go through the programs. If you have any questions about them, let us know, please. Slide 11, continuing with GE Aerospace.

Speaker 1

MRAS Park LTA provides for an approximate 6.5% weighted average price increase effective January 1, 25% for the products recovered by the LTA. I've been asked about this a lot, lot, lot. I said, well, I really don't want to say, but now we're saying kind of an investor presentation where it's appropriate. Park, composite materials, don't forget, we don't have to cover that one. We cover that every time.

Speaker 1

Let's go to the last one, fan case containment wrap for Gen X engines for the Boeing 777 aircraft. That's produced with parts, AFP and other composite materials. Park recently received a PO of approximately $6,500,000 for materials for this program. So this program is ramping. Our customer received a large order for, case wrapped units.

Speaker 1

We're clearly not going to talk about numbers, but this still slowed down to us in terms of a PO, and there's more coming, I suspect a lot more. So this program is no longer just kind of development. It's really starting to ramp now. Part materials for its program are expected to be included in the LIFO program. So they're not in the LTA because this came after the LTA, but the expectation is that we'll just put the Gen X the G9 X program into the LIFO program agreement, which we'll discuss in a second.

Speaker 1

Slide 12, so just trying to watch time. MRAS Parquet LTA was amended to include 3 film adhesive product forms for composite bond, metal bond. This is really outstanding because these film adhesive formulations are developed through a joint development agreement with MRAS HGE. And a lot of time and effort went into this, but it's outstanding because as soon as the development is done, then we go right into qualification. So that's really very wonderful and special MRAS qualification of 2 proprietary film adhesive hesser product forms in progress.

Speaker 1

Why not 3? Because so this is the process. We go through a qualification with MRAS and then MRAS needs to go through a certification process with their customers on selective programs. So the 1st program that MRAS intends to get us certified on does not use metal bonds. So that's why we're not qualified metal bonds at this point.

Speaker 1

They'll come later, right? Life of programs agreement requested by MRAS and SDE, agreement is under negotiation and Mark led a team of, I guess, 3 park people to MRAS a couple of weeks ago. We spent a couple of days they spent a couple of days working on the agreement with MRAS, so it's under negotiation. So we finally made some good progress on it. But just keep in mind, this is what they want.

Speaker 1

They requested it today being MRAS and SDE. We're happy to do it, but they're the ones who requested it and for good reason. Okay. Let's go on to 13, Slide 13. Continuing with the additional, a little different update on GE Aerospace programs now.

Speaker 1

A320neo aircraft family includes all these variants. I won't read them off. Airbus has a huge and underlying huge backlog of A320neo aircraft firm orders of 7,253. That's so many airplanes, unbelievable number of airplanes. Airbus has been had been maintaining that intent to achieve a rate of 75 A320neo family aircraft deliveries per month in 26.

Speaker 1

It's going to 14. So this is just a little history here about the deliveries over the prior years of the A320neo aircraft. You can see that kind of peaked in 2019 and that's what happened, pandemic, the numbers fell off. In 2023, they got back to the pre pandemic rate, 5.71 compared to 5.61. And year to date through September, about 396 not about 3.96 deliveries compared to last year year to date 3.91.

Speaker 1

Don't annualize that. That doesn't work because aircraft industry for some funny reason that a lot of deliveries happened last quarter. But it's basically saying we're kind of tracking last year, which is a little disappointing. We were hoping that we would be able to show a little bit of improvement from last year. Last year, it was 48 airplanes per month, as you can see.

Speaker 1

Let's go on to Slide 15. Then on June 20 4, 'twenty four, Airbus announced it's pushing on its goal of achieving the 75 aircraft family monthly delivery rate from 26 to 27. Not surprisingly, Airbus highlighted supply chain issues, oh, boy, supply chain issues, they should have all over again, especially engine availability issues as a key reason for the push out. What's funny about this, do you remember, what is it, a year or 2 ago, we were all clear with engines. It was not just Airbus said it, the engine company said it.

Speaker 1

Air engines blown over an issue, everything is great. Now we're back in the soup with engines. I don't know what to make of that, but now engines are front and center in terms of what the main supply chain issues roll about. Supposedly, maybe casting and forging for the engines, but it's engines that's the problem. Clearly, based upon their huge backlog, Airbus would already be at $75 per month rate.

Speaker 1

Why is that? How many year what did we say how many airplanes are in order, 6,000 something, I got to go back, sorry. What was that number? No, sorry, 6,000 7,200, 7,253, okay. So let's say there are 50 now, which maybe you do not, but let's say there are 50 now, that's 600 per year.

Speaker 1

Well, how many years is that with, it's over 7,000 orders? The problem is Airbus wants to sell more airplanes. So you order an airplane, your delivery is, what, 13 years down the road? That's not very conducive to selling airplanes. So one of the reasons Airbus wants to push it up to $75,000,000 $75,000,000 it goes to $900,000,000 per year, that's still not you order an airplane until you get it next year, but it brings the lead time down a lot, which will allow Airbus to sell more airplanes, which is what they want to do.

Speaker 1

They want to sell a lot more airplanes. So anyway, will Airbus achieve its goal of 75 deliveries per month? We certainly believe they will. Will they achieve it in 'twenty seven? We believe they will, but we're not sure it really matters very much whether that goal is achieved at 'twenty seven or maybe 'twenty eight.

Speaker 1

Key thing for Park is that we need to be ready. And the key thing is they will get to that rate. All these orders will be filled, they'll take more orders and we just need to be ready. And we're not sure what the timing of the ramp will be. I don't think anybody is sure.

Speaker 1

We just need to be ready, number 1. Number 2, those sales will be there and they're incredible sales Park. 16 approved engines for the A320 aircraft. There's 2 approved engines for the A320neo. There's the CFM LEAF-1A, that's the engine program we're on.

Speaker 1

Then there's a Pratt, Pratt and Whitney, a PW1100 gs GTF engine, not in that program, just on the CFM program. We spoke lots and lots about the durability issues, especially for the Pratt engine. We'll cover that here. So let's see. According to the September 24 edition of AeroEngine, CFM LEAP-1A's market share, firm engine orders, is 64.4%.

Speaker 1

That's a nice market share. I don't remember, but I think last quarter it was maybe 62%. It's been around that 62%, 63%, 64% range, moved up last quarter, but that may not be sustainable, I don't know. But at least it's well over 60%. At the delivery rate of 75 H320 DO aircraft per month, that's 64.4%, LEAP-1A market share translates into 11.59, just doing the math, LEAP-1A engines per year.

Speaker 1

What's that worth to park? Well, just go to Slide 34, it gives you an idea of what it's worth to park each year. Currently, this is just one of these huge numbers, 8,238 LEAP firm LEAP-1A engine orders. That's a lot, a lot of engines. What are those firm orders worth to park?

Speaker 1

Well, I mean, go to Slide 34, it tells you what we get per engine. I think it's about $250,000,000 And that assumes that we're going to continue to fly after 'twenty nine, which whether we have a life form or not, we're quite confident we will. And it does not assume, don't take into account, there'll be price increases during that time frame. But you think about it conceptually, dollars 250,000,000 does it really matter to us whether it's 27, dollars 28, dollars 29, It's just a lot of revenue for Park. And those engines are going to be sold.

Speaker 1

Those engines are going to be produced and sold. Those are our engines. That's our program. So as you know, I think of people selling a stock at $13 I'm not sure what they're thinking. Let's go on to Slide 17.

Speaker 1

Airbus, okay, here's one of the variants, A321 XLR. Airbus opened additional XLR production line in July. The A321 XLR powered by LEAP-1A engine received its YASA type certification in July. That's really nice news. That's good.

Speaker 1

And the IASA is the European equivalent to the FAA. The first A320 with XLR delivery scheduled for latest month to Iberia. And according to Airbus, there's over 5 in orders for this program, important program for Park. Let's keep going, Slide 18. Okay.

Speaker 1

Now let's go to COMAC, COMAC 919. That's the single aisle airplane that COMAC developed to compete against the 7 37 and A320. That has another kind of LEAP engine. This is called LEAP-1C. I don't know, maybe C stands for COMAC.

Speaker 1

But it's a variation of the same engine that's in the metric 20 Neo. COMAC plans to achieve production rate of 159-1,000,000 aircraft a year over 28. I think that's credible. They're investing huge amounts of money in production lines. I think they now have 3 final assembly lines, report to have over 1500 orders for 9 19 aircraft.

Speaker 1

9 19 is now flying for Air China, China Eastern and China Southern, all Chinese airlines. Comeback clearly has designs on getting out. It's all these airplanes outside of China though. They've delivered 9 so far and they've logged over 10,000 flight hours. This is an important program for Park.

Speaker 1

We'll see what happens, but we believe and our customer believes it's a very important program with lots of upside opportunity. Let's talk about Slide 19 rather, 777X aircraft with G9X engines. In August 2019, Boeing grounded its 777X test flight fleet after detecting engine attachment issues. The fleet remains grounded while Boeing continues to evaluate the problem. These engines, they achieved a record 134,400 pounds of thrust.

Speaker 1

That's why those engines attach rates are pretty important. They're certified for 110,000 pounds Put in perspective, the LEAP-1A engine for an A320 is about £32,000. So big, big, big engine, lots of power. October 11, 2024, Boeing announced it's pushing out its first delivery target to 'twenty six through 'twenty five because of development challenges, flight test pause and the work stoppage. Boeing says they sorry, not Boeing, according to data, Boeing has 481 orders for these airplanes.

Speaker 1

So, a little bit of setback, but I mean, the thing is, it's very this is a clean sheet airplane, so it's not surprising that they'll have problems like the engine attachment problem. It's very, very important that this happened, that this is detected during the development and certification phase, not after this airplane is flying in the air at 38,000 feet with 400 people on it. So this is a real important program for Park. We just the best wishes for Boeing. Obviously, they're not having a bad time now, but we hope that Boeing finds a way to move ahead and make things better.

Speaker 1

Let's go on to Slide 20. We can quickly cover this. Pretty much everything here is provided for history, for context. In the bottom right here, fiscal 25 Q2, dollars 7,100,000 of sales. This is I'd like you to read the title.

Speaker 1

GE Aerospace Change, your program sales history and forecast estimates. Dollars 7,100,000 in Q2. I think our estimate was a little lower than that, kind of in the range. And our forecast for Q3 is $6,250,000 to $7,000,000 That's our forecast for Q3. For the year, dollars 23,000,000 to $26,000,000 Now we provide that forecast last quarter.

Speaker 1

We're just sticking with it for the year. Okay. Let's go on to Slide 21, Park's financial performance history and forecast estimates. So again, most of it is provided most of the data here is provided for history context. Fiscal 2025 Q2, you already have that number, dollars $19,900,000 EBITDA.

Speaker 1

Our forecast for Q3, dollars 13,500,000 to $14,250,000 of sales, dollars 3,000,000 to $3,300,000 EBITDA. Note the footnote subject to supply chain risks and limitations. We'll discuss that even further in the next slide. So let's go on to Slide 22. This slide is exactly the same slide we presented to you last quarter.

Speaker 1

Everything is historical other than the forecast estimates. We're not changing the forecast estimates for the year. Pretty big ranges, dollars 60,000,000 to $65,000,000 sales, dollars 13,000,000 to $15,000,000 EBITDA, and this is what we provided last quarter. So I'm not changing it. But look at the important thing, supply chain limitations affecting aerospace industry.

Speaker 1

So I want to stop for a second. The aerospace industry is not really a happy place right now, not so much fun. For perspective, the European air shows the big ones, Paris and the Farnborough alternate every year. Last year was at Paris, lots of exuberance, maybe irrational exuberance depending on hindsight about all the orders are taken, all the engines that are all the airplanes and engines being sold, everybody is very excited about that. Wonderful, wonderful, wonderful.

Speaker 1

Okay, that's nice. Then we fast to Farnborough this year, very different tone, very different mood, kind of glum because everything that is coming out of Farnborough, supply chain, supply chain, supply chain, supply chain, supply chain, the problem has been solved. One comment, I guess, was a little sarcastic was, who cares how many engines sorry, how many airplanes you can orders you can take. If you can't make them, what difference does it make? Now obviously, that's being sarcastic, but that was the recent mood.

Speaker 1

What's interesting, I guess, you want to look at it that way, as we go through these kind of fun of deja vu all over again, how many times have we heard in the last 3 or 4 years, supply chain issues almost over, about solved, about solved, everything is going to be fine. And then we're back in the soup. Why is that? I don't know. Maybe it's a psychological thing.

Speaker 1

My guess is they never were solved. It was just a wishful thinking, and wishful thinking is contagious. 1 person says it, another person says it, okay, fine. But supply chain issues are clearly not resolved or not have not gone away, and they have an impact upon the industry. So just keep that in mind with these forecasts that we have all the risks that we put in the 10 ks, but supply chain issues are a key risk for these forecasts.

Speaker 1

So and of course, we also are ramping up the cost for Juggernaut, and that's not just a temporary thing. That's holding back our not our top line, but our bottom line. Let's go on to Slide 23. Try to hustle here a little bit if we can. General park updates.

Speaker 1

I guess we're just covering a lot in this presentation, so it's maybe taking a little bit longer. Solution treated project, we plan to purchase and install an additional solution treater. Why are we doing that? We'll take approximately 3 years to design and specify the equipment, install it and conduct control trials, qualify the equipment for production with customers, 3 years. So we're quite concerned.

Speaker 1

We look at the opportunities we have. We look at the programs we're on and the opportunities we have. We're concerned that we're going to run that capacity. So we need to move now because it's a 3 year time frame. We can't wait 3 years.

Speaker 1

We do that. We're, what's the term, screwed, I think. The budget for the project is about $70,000,000 This is something we decided to do when we're going out with the project. This will be placed in a new factory. Remember we told you that there was a big area set aside for new line?

Speaker 1

Well, this is where that line is going to go. Another item, these items are all related. They're just updates. Major OEM suppliers, SaaS partner sorry, to partner and coach with them, the purchase of an additional manufacturing line to support critical drench programs. This equipment is essential to these programs, so it's needed.

Speaker 1

This OEM is quite a larger a bit larger than part because they want us to be partners, dollars 50,000,000 to $5,000,000 each. And we're now negotiating the agreement, but we plan to do this. It has to be done. This additional line is essential for these military programs. So we're talking a little bit about money as well because we want to get to that later on in terms of our cash.

Speaker 1

24, Slide 24, we recently qualified in an essential high profile missile defense program. Park is potentially sorry, this program is potentially larger for us than the PAC-three missile program. Initial revenue is expected for Park next year and program is expected to ramp from there. And we probably need to make a $1,000,000 in capital investment just towards this program. This is an important accomplishment for Park.

Speaker 1

Let's put it that way. I can't we can't talk give you more details about the program, but you would have heard of it, that's for sure. So next item, Park recently entered into a license agreement with a major OEM for license technology used for hypersonic missile programs. We understand that Park is the only licensee of this technology. We're currently conducting manufacturing trials, significant potential opportunity for Park Online is significant.

Speaker 1

Park will need to make a capital investment, approximately $3,000,000 I just want to stop here because these are not certainties, and that's not the standard for us sharing things with you. I think you would want to know about important opportunities for Park. But if you just want to wait for these things to be locked, that's different. But I don't think that's really what you want to hear. So my point is that this may happen, it may not happen.

Speaker 1

A shareholder complained about, well, we talked about similar program a couple of years ago, it didn't happen. Yes, we talked about it because it's important and it seems serious. That wasn't a guarantee it's going to happen. So just keep that in mind, all right, please. Slide 25, new LTA with GE Aerospace, these are separate items in progress for calendar year 25 to 30 under which GE is awarding 2 additional products for Park and the incremental revenues from that is $3,000,000 This is not part of the juggernaut, by the way.

Speaker 1

This is separate incremental revenue. This is not the incremental revenue. This is not the MRAS LTA. This is the GE Aerospace LTA, separate LTA. A potential JV with major adhesives company related to adhesives for the aerospace industry.

Speaker 1

Those discussions and negotiation in progress, we've had numerous in person meetings. I believe there's one next week actually in our facility. And a significant capital investment may be necessary to support the JV, we'll see. Another potential JV was a major Asian industrial conglomerate related to the manufacture, marketing sale of certain new parts, commercial composite materials products in Asia. So these discussions and negotiations in progress, as I sure are, we have a team over in Asia right now.

Speaker 1

And we've had a number of meetings already. This could involve significant capital contribution in Park. This OEM is quite aggressive. We're trying to slow it down a little bit. They definitely want to do this.

Speaker 1

So it's, I think, maybe a good possibility that actually happens. Slide 26, totally different topic, but still an update. MRES supplier card was just card maybe I'm trying to cover too many things in this one presentation. MRES supplier scorecard. Park scores, you can see the scores.

Speaker 1

The first item was actually a mistake, really should have been 100. What these scores mean? What is their significance? We're told that MRAS has over 700 suppliers. Are these typical MRAS supplier scores?

Speaker 1

No, I don't think so. We're told that most suppliers would be happy to get 80s. I've been told that numerous times, and a lot of them don't get 80s. Are these scores achieved by other suppliers ever? I don't think so.

Speaker 1

So similar theme is Park, MRAS' best supplier, over 700. That's what I'm told. How does that happen? Is it a boardroom thing or a boiler room thing? This is such a special situation for Park, and I'm not sure whether it's fully appreciated, how special it can achieve and accomplishment this is and how special it is for Park to have this kind of relationship with a company like this.

Speaker 1

See, it's our strategy for customers to love us. In order to that strategy be implemented, that's more of the boiler room thing. That's really a culture thing. That it depends on Park having very dedicated employees. That's how we achieve these scores.

Speaker 1

That's how we become their best supplier and what we're told anyway, their best supplier. So, yes, I mean, example, I'm sorry to take the time, but just one little example. John Moon, I mean, we were told he has a house, but we would never know that. He's never leased the plant. If something has to be shipped, it doesn't matter what time.

Speaker 1

He's not going anywhere. He's not going anywhere until that truck has left the dock and that kind of dedication. If you want your customers to love you, you need to have people like that. The rest of strategy is nice, but in order to implement it, you need to have people that are very dedicated. So let's go on to Slide 27.

Speaker 1

Questions about this is now a different topic. We got recent questions from investors, okay. So a whole new section here that we have not previously. Let us know if you want us to continue with this, but we thought it would be interesting to include some of the questions that we received from investors, questions about our foam adhesive product line, we call it Arrow Adhere. What advantages does Arrow Adhere have over competing products?

Speaker 1

Well, aero industry is a little strange. It looks for equivalency more than better. In other words, better is not really such a good thing. When we developed film and adhesive, remember we did that with a joint development project with GE and MRAS, with a lot of tweaking, a lot of fine tuning for their needs. But generally speaking, we want equivalency because if it's not equivalent, if it's better, then the customer is going to have much more difficulty incorporating into their programs.

Speaker 1

Why would a customer then buy it from Parq if it's just equivalent? Because of Parq more than the product itself. They're buying why are we selling? We're selling Parq. We're selling the fact flexibility, responsiveness, urgency.

Speaker 1

So people say, well, what is the expression? Oh, customer says jump and you say how high. We don't do that. We say how high before they say jump. And I'm not kidding.

Speaker 1

We say how high before they say jump. That's what we're selling. Do we anticipate that Arrow here is Arrow here is sorry, a tongue twister. Margins will be higher or lower than Park's average margin. This is a question from investor.

Speaker 1

Higher, and we're quite sure of that. Several years out, what sort of range of revenues are we targeting for aero here? Well, we're not sure. The strategy though isn't really a revenue strategy. It's to broaden the product line we offer to customers, which manufacture aerospace composite structures.

Speaker 1

That's why we love adhesives so much because customers buy our product to make composite structure to aerospace. Obviously, they need to buy composite materials to make composite structures, but they also use adhesives in their production in these composite structures. Just for reference, though, since you're asking about revenues, the A320 program is the first program that MRAS intends to get our film adhesives certified on, And that's $3,000,000 per year at this once the program ramps to 75 airplanes per month. So let's and obviously, that's not it. We have lots and lots of other opportunities working on, not just with MRAS, but other companies as well.

Speaker 1

Slide 28, more questions. What about that major new manufacturing project initiative we discussed in our Q2 sorry, Q4 investor presentation last year? What's the status? It has morphed into a larger project. Why wasn't it discussed during our Q1 investor presentation?

Speaker 1

Well, the customer which initiated the project now wants the project to be an aerospace composite structures manufacturing technology JV, a potentially larger quite a bit larger project. This JV like with NewCo, where 2 companies own it, I guess. What about our strategy? What is it? Somebody actually asked that we have a strategy.

Speaker 1

Yes, we have a strategy. We call it the X strategy. We're certainly not going to take the time to go into it now, but let us know if you want us to discuss our strategy. It'll probably take 5 minutes in an upcoming presentation. It's a straightforward strategy.

Speaker 1

It's not like an elegant strategy. It's very straightforward. So nothing we tell you is going to surprise you, but we're happy to go over it with you if you'd like. Slide 29, different topic, our buyback authorization. We announced on May 20 3, 2022 that Park's Board authorized the purchase of 1,500,000 shares.

Speaker 1

Under this authorization, we've purchased as little of 551,729 shares at an average price of $12.94 total cost of $7,100,000 So we're spending some real money on this. Now, in highlights though, recent buyback activity under the authorization since July 26, 24, the significance of July 26, that's after the blackout, the Q1 blackout ended was lifted. We purchased 331,180 shares of common stock, average price of $12.88 total gross of 4,251,000 dollars Like I said, we're spending some real money on this now. Why do we do that? Because we thought the price was stupid, ridiculous.

Speaker 1

We it's not really our preference to buy stock. We'd rather use our cash to take advantage of all the opportunities we have. But when the stock price is, we feel stupid and ridiculous. We don't think we have too much of a choice. Will we buy more?

Speaker 1

I don't know. We'll have to see, maybe. So let's keep going. That's our buyback program. Slide 30, credible cash dividend history, 39 consecutive years of dividends.

Speaker 1

We've paid $596,000,000 or 29 $0.10 per share since fiscal 'twenty five. So a little bit of a thing here that we're developing a concept anyway. So we have a regular dividend payable on November 5. It's not right. It's something you paid on November 5, 2024.

Speaker 1

So sorry, that's a typo. I just noticed that. And we'll have paid $598,600,000 at that point. And then it looks like there's another typo. The next regular dividend is planned to be declared by Parks Board about January 9, that's roughly 25, sorry about this, and paying about February 4, 25, And that's within the fiscal year.

Speaker 1

Somebody is not going to get paid this week for these mistakes. Unfortunately, I think that somebody has made because I'm going to make the mistakes. So sorry about that. But the concept is during this fiscal year, if you look at the highlighted language, we'll have paid by the end of this fiscal year rather $601,100,000 in dividends since $0.25 and also $29.35 per share since 2025. Do the math, 2005 to 25, that's 21 years.

Speaker 1

So if you want to do the math, divide 601.1 by 20 sorry, that's 21 years, yes, sorry, 21 years, so divide 601.1 by 21, that's $28,600,000 per year. Just FYI, you're going to divide to $29,350,000 by $21, that's $1.40 per share per year of dividends paid since on the average paid since fiscal 'twenty five, the beginning of 'twenty five. Let's go on to Slide 31, our balance sheet. We have no long term debt, $72,000,000 of cash. We just talked about that.

Speaker 1

We have one more transition tax as form of payment of $5,100,000 in June of 'twenty five. Thinking about our cash, so some known or likely cash expenditures of $5,100,000 That's not likely, that's known. That tax payment in June, we have to pay that. Our share buyback in fiscal 2020 in fiscal 2020, 2022 Q3 in our current quarter, that $2,400,000 that's already been spent. So that's a known item.

Speaker 1

Solution trigger project, dollars 7,500,000 that's an estimate. Contributions to the OEM partnership approximately well, dollars 5,000,000 that's what we're talking about. So that gives us a round number of $20,000,000 So $72,000,000 minus $20,000,000 is $52,000,000 So if we go to Slide 32, when we think about $52,000,000 well, that doesn't include a lot of other things that we've already discussed, a lot of our items, which we won't iterate here, these items that are listed, we've already discussed in this presentation for the most part. And some of these things will happen, some won't. We also have likely have additional expenditures in new plant when you actually start in production, no matter how much time you spent with the trials and qualification.

Speaker 1

We start in production, you realize some other things that might be needed. So there might be some additional investment that's required in the plant equipment investments. So what do we think about our cash? We think that we don't have a limited cash. We think we need to be real careful how we spend it.

Speaker 1

Let's go on to Slide 33, the juggernaut. We've covered this the last three quarters, so we'll try to rush through it. Financial outlook for GE Aerospace Jet Engine Programs and for Park, the juggernaut. So what's the timing? We're not sure, but it's coming, can't be stopped.

Speaker 1

We better be ready. Going on Slide 34, the only change here, unfortunately, is GE9X program. So we moved up that number. That's based on specific inputs we have from our customer. We've heard higher rates, but that's based on specific inputs rate inputs we have from our customer.

Speaker 1

And as we said, we're not going to provide any more detailed information because it really is not our business. It's more up to Boeing and G, disclose how many airplanes they plan to make per year, not for us to do that. So why don't we go on to the next Slide 35. Clark Aerospace Corp high level conceptual financial outlook. We start with a baseline year of fiscal 'twenty four.

Speaker 1

The estimated GE programs incremental sales, that's just math, taking the number from the prior slides, subtracting the 'twenty four sales, I think that was $1,000,000 incremental sales $37,600,000 Estimated non sorry, non GE programs incremental sales $15,000,000 So we tried to do something a little differently here. In the past, we were breaking it down between programs we're sole source qualified on. And other programs that we expect to get on and other sales we expect to generate. We just put it in 1 bucket, dollars 15,000,000 As indicated in the footnote, we believe that's a conservative number based on all the opportunities that we're working on. The total here, you can see $108,600,000 The contribution EBITDA contribution from the incremental sales is $19,700,000 That's based on a contribution rate, I believe, of 37.5%.

Speaker 1

The additional $4,000,000 we discussed that before. That relates to our base year, which is quite inefficient because we're operating well below efficiency of the new plant and for many reasons we discussed in the past, which we won't go over here. Slide 36, just a footnote to the slide we just read, so we won't go through those. And that concludes the presentation. Thanks for listening.

Speaker 1

Operator, we're happy to take questions at this time.

Operator

Great. Thank you so much. At this time, we'll be conducting a question and answer session. First question here is from Nick Reposto from NR Management. Please go ahead.

Speaker 2

Good afternoon, Brian. First, I just want to say on share repurchase, I'm very appreciative of how judicious you are in repurchase. I come across so many smaller companies that they overpay for their stock, sometimes double where it's currently trading and then put that in their press release that return cash to shareholders, which actually they destroyed value. So you've been very wise and I'm appreciative of that. So a couple of quarters ago, I think you were talking a little bit about automation potentially in a new facility.

Speaker 2

So I've been reading a lot and watching a lot about the use of robots and other automation in factory settings. So can you just give me your perspective? Do you feel at any point you'd be disadvantaged by not having automation in the facilities? Or just I'd like to understand your perspective on that. And kudos to the workforce there.

Speaker 2

It just goes to show you some places have a great culture and don't need a union. You've built a great organization in that regard. Thank you.

Speaker 1

Thank you very much for those comments, Nick. Appreciate it. As far as automation is concerned, if you visited our facility, you would see that we're operating these lines that run continuously with usually a staff of about 4 people. So you don't look at it like an assembly line where you think, oh boy, a lot of these procedures and processes could be automated to reduce cost, maybe improve efficiency. One of the areas so that doesn't mean we're not interested, but I think that the opportunities for a park type operation are maybe not quite as much to bang for the buck wise as other kind of operations would be.

Speaker 1

But we talked also about automation with respect to that project, that manufacturing project that's now morphed into a potential technology JV. And that's an area where automation would be front and center, I think. So that project still has to be initiated. Like I said, it morphs, so it's a larger different kind of project, but that project would involve quite a bit of automation, I believe.

Speaker 2

Okay. Thank you. Can I ask one more?

Speaker 1

Sure.

Speaker 2

Just I know this is a difficult thing to say, but where would you be disappointed in terms of Airbus' say ramp up of deliveries next calendar year? Where would you be disappointed if it didn't reach whatever the number is? 52, 54, 50, where would it disappoint you?

Speaker 1

I'm not sure I understand your question. You're talking about in terms of our annual sales or No, the delivery. Oh, A320, Per month to me, monthly rate?

Speaker 2

Yes, correct.

Speaker 1

Okay. Yes. Well, we're disciplined already, so maybe that's a hard question to answer. The supply chain has clearly become more of a known issue, probably zero along. My guess is that this year maybe look at the 50, last year 48.

Speaker 1

I've seen all kind of different forecasts. I mean, obviously, we like to be 75, so maybe that's not a proper answer. It would be nice if next year they're at 55. I don't know if that helps, but if they're not, we're already disappointed. So we're probably disappointed with any number that's under 75.

Speaker 1

But the key thing is for us to hang in there and be ready for the ramp because as far as we're concerned, there's no question they'll get to 75. Just with all the orders they have, it just doesn't make any sense they wouldn't get to 75. So the key thing for us is to make sure we're ready for that, and that's really important. That means we need to ramp up the new facility. That's why we're doing that now, but we're also kind of suffering through the additional cost burden of ramping up facilities that is still operating at a very low rate.

Speaker 2

Okay. Thank you. Yes. And as you've said before, this is a long term proposition. And I really loved your comment about the stock price stupid and certainly got pretty stupid at one point.

Speaker 2

So I appreciate it. Thank you so much, Brian.

Speaker 1

Thank you, Nick. Very nice to hear from you. Tried to cover too much during this presentation. I think everything we covered was meaningful and information that many of you probably want to know about, but nevertheless maybe we bit off more than we could chew. So I apologize for that.

Speaker 1

Lydia Bent, thank you very much for listening. We hope you have a very good day. We'll talk to you soon. Goodbye.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.

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Key Takeaways

  • They reported Q2 sales of $16.7 M and adjusted EBITDA of $3.2 M, slightly above guidance, but gross margin fell to 20.5% due to low-margin Aerion C2BNG part sales and $1.26 M of annual depreciation plus overhead from a new production facility.
  • Ongoing ramp-up of the new Park facility is intentionally underutilized, incurring planned expenses for staffing, utilities and maintenance that will continue to pressure margins until full production begins.
  • Supply chain and international shipping disruptions resulted in $0.6 M of missed Q2 shipments, highlighting persistent aerospace industry challenges despite only $46 K of storm-related expenses.
  • Significant future upside is underpinned by Airbus A320neo’s 7,253-airplane backlog targeting 75 monthly deliveries by 2027, plus COMAC 919 and Boeing 777X GenX program ramps, all driving increased demand for Park’s composites.
  • Park is expanding strategic growth engines through a GE LTA amendment adding three new film adhesive products (~$3 M incremental sales), a hypersonic missile technology license, and negotiations for two JVs with major OEM and Asian partners.
AI Generated. May Contain Errors.
Earnings Conference Call
Park Aerospace Q2 2025
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