Park Aerospace Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 16, 2024

There are 2 speakers on the call.

Operator

Hello. Good afternoon. My name is Alicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace First Quarter Fiscal Year 2025 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 the call over to Mr. Brian Schorr, Chairman and Chief Executive Officer. Mr.

Operator

Shore, you may begin.

Speaker 1

Thank you, Alicia. This is Brian. Welcome to Park's fiscal 2025 Q1 investor conference call. Nice to have you on board. I have with me as usual, Matt Farabaugh, our CFO also Mark Escobar, President and COO.

Speaker 1

We issued our published earnings release, Q1 earnings release after the close. You want to take a look at that. In the earnings release, there are instructions as to how you can access the presentation we're about to go through. It's also posted on our website if you want to go that route. The last investor call, the Q4 investor call, it's only 6 weeks, yes, 6 weeks ago.

Speaker 1

So not normally we have 3 months time frame in between calls. So what we'll do is focus on mostly new and updated information in this investor call, try not to go over too many things we covered in our Q4 call. Of course, at the end of the presentation, we'll be happy to take any questions you might have. Let's go on to Slide 2, forward looking disclaimer. If you have any questions about the forward looking disclaimer language, let us know.

Speaker 1

Slide 3, So we have a little table of contents here, Q1 investor presentation after that supplementary financial information, As usual, we provide this to you, but we don't cover it. We'll review it during the call, but if you have any questions about it, let us know. We're featuring the James Webb Space Telescope here. As you know, this James Webb was constructed with Park's proprietary Cygnus Struts. And it's really quite an amazing thing.

Speaker 1

Just recently, I think maybe last couple of weeks, we discovered the most distant, oldest galaxy that so far has been discovered 290,000,000 years after the Big Bang, which is very recent if the Big Bang, the Big Bang supposedly was about 13,800,000,000 years ago. And the key point here is this is not supposed to happen. These galaxies aren't supposed to exist so early in the development of the universe. So the James Webb is through the James Webb, really most of our views about the universe and its origin are just going to have been blown out of the water, quite interesting. Let's go on to Slide 4, our quarterly results for fiscal 2023, 2024 and 2025.

Speaker 1

Q1, so as you know from the news release, I guess, sales $13,000,000 970 dollars gross profit, a little over $4,000,000 gross margin, 29.3 percent and EBITDA adjusted EBITDA $2,600,000 I just want to remind you last quarter we went through a number of things that affect our earnings over the long haul while longer haul relates to ramping up our business and what we call the juggernaut and setting up our new facility. And one of the things we mentioned, and we're not going through all those things again, but I just want to bring depreciation to your attention. The new factory depreciation is about $1,300,000 per year and that equates to about 2.3% of the gross margin. See depreciation actually does affect gross margin, because it's part of cost of goods sold. It doesn't affect EBITDA, of course, by definition.

Speaker 1

Let's go on to Slide 5. So Slide 5, what do we say about Q1 during our Q4 investor call, which took place on May 30, 6 weeks ago? We had a sales estimate of 15.75, so 16 1 quarter, dollars 16,250,000 and as I just said, dollars 14,000,000 of sales, so that seems a little strange, doesn't it? Adjusted EBITDA estimate $3,250,000 and we have that was our estimate, we have EBITDA $2,600,000 So what's going on here? Just to remind you, the Q1 sales estimate was that we provided during our Q4 call was based upon fully booked sales in Q1 and the Q1 EBITDA estimate was based upon those fully booked sales.

Speaker 1

So obviously, you know what I'm leading to. However, the language in bold and this language is in our we're just taking it from our Q4 call. So it's a little awkward. These are the things we said during Q4. It may seem a little bit strange.

Speaker 1

But however, our fiscal year 2025 Q1 sales and EBITDA will be impacted by then no known amounts by the storm damage to the company's facilities, which were reported in May 22, 2020 4 company news release. Again, this is speaking on May 30. And although as reported in the news release, and then unknown amount of Q1 sales will slip from Q1 into Q2 as a result of storm damage. We do not expect we did not expect to lose any sales or business as a result of storm damage, and we still don't expect to lose any. Okay, let's go on to Slide 6.

Speaker 1

What about that storm? Let's talk about the storm to storm damage. Now we have more information about it. On Sunday, May 19, at approximately 8 pm local time, parks in Kansas facilities were damaged by strong straight line winds reportedly reaching 100 miles an hour, not a tornado as far as we know, but straight line winds could actually be more damaging in tornadoes in some cases. The very good news is none of our people are at the facilities at the time and nobody was hurt.

Speaker 1

We're lucky with the timing of storm from that perspective. That's probably the only night of the week, maybe Saturday, but every other night at 8 p. M, there'll be a lot of people at the facility. And inside the facility, there are shelters, storm shelters. But if people are outside, going back and forth in the car cars at the time of storm like this, that could have been a very bad result.

Speaker 1

We're very lucky and fortunate that did not happen. Unfortunately though, so that was the good news with the timing. The storm damage occurred at the very beginning of the last 2 weeks of Q1. That's the bad news with the timing. As a result, production was seriously disrupted during those last 2 weeks in the quarter and shipments, meaning sales, were significantly negatively impacted during those last week to reach the quarter.

Speaker 1

Now we understand the big discrepancy between what we estimated and what actually happened for Q1. But Park's people did an incredible job recovering from the storm and storm damage. And thanks to our people, our facilities were fully operational with the employment of certain temporary measures by June 3, 'twenty four, and that's the first day of parts fiscal year 2025 Q2. And that's just 2 weeks after storm occurred. So quite a remarkable job, I believe, in storm recovery by the Park people.

Speaker 1

Slide 7, what was damaged by the storm? So I keep getting questions about all this stuff. So maybe some of this is all had for you, it's boring, but we haven't really provided this information. So I'm going through it all now because I've had lots and lots of questions about these different aspects of the storm. What was damaged?

Speaker 1

About these different aspects of the storm. What was damaged? The roofs in all three buildings, we had 3 buildings at our campus were damaged and likely will need to be replaced. The roofs were very quickly temporarily repaired and the roofs are secured. Numerous specialty HVAC units were either damaged or destroyed and needs to be repaired.

Speaker 1

Repairs are complete or placed pending the replacement new units are in order, Temporary temperature and humidity control has been in place. These HVAC units are not just for people comfort, we're required to maintain certain temperature and humidity limitations within certain aspects of the plant, the labs and other actually production areas of the plant. So let's see where we are here. Company cars in the parking lot were damaged. Yes, they were not where they were damaged, but also they weren't where they were left.

Speaker 1

They were officially moved to different parts of the parking area. And there was minor additional damage to to facilities like the R and D building and its roll up doors, garage doors damaged. What was not damaged by the storm? This is probably the more important question. Structures of the 3 buildings located at the campus, other than they were not damaged other than the roof damage, which we already mentioned.

Speaker 1

The production equipment none of the production equipment was damaged, obviously, good news. Production lab and production and R and D lab equipment not damaged by the storm. So let's go on to Slide 7. By the way, these I should tell you these HVAC units are on the roof and some were officially ripped off the roof. There was in the parking lot, obviously wrecked.

Speaker 1

They fell off the top of the building in the parking lot when we got arrived at the facility. Quite a storm. Slide 8, how long will it take to complete all the repairs? It could take up to 6 months, I'm not sure, but all production lab facilities, as we said, have been fully operational and functional since June 3, and they continue to be fully operational and functional. What about insurance?

Speaker 1

We keep getting asked. The company's property insurance policy contains a wind damage deductible provision of approximately 2,500,000 dollars So for fire, it's much less, but for wind damage, the deductible is quite high. And we do that intentionally, because we could have a much lower deductible, but it's going to cost us with our premium, annual premium. And so when we think about insurance for Park anyway, we think about catastrophic loss. The smaller for Park anyway loss of $2,000,000 $2,500,000 We have the cash.

Speaker 1

We'd rather ensure that ourselves because if we don't, we get it we buy insurance. We're betting against the bank. The insurance company is always going to be smarter than us, which will win over time. So we will play that game. The company submitted a claim against this policy and the recovery the company received from the policy will be can't afford to time the recovery.

Speaker 1

Let's go on to Slide 9 and how we can afford a storm. The company recognized a one time charge. This is in our Q1 report, in our Q1 of approximately $1,100,000 predominantly to account for the write down of the book value of the buildings, which were damaged and equipment, which was either damaged or destroyed. This charge also included approximately $80,000 of people costs incurred during those 2 weeks on the storm, many park people were working on the storm recovery and cleanup rather than a production and testing of products. Other words, they're normally making stuff that we sell.

Speaker 1

They're working, but they're not producing anything. So that was part of their charge. And just so you know, and you probably if you know Park at all, I doubt you're shocked to hear this. Our hourly people were fully paid during those 2 weeks. We know some companies, the salary people, they get paid, they send the hourly people home, they get screwed.

Speaker 1

We don't do that kind of stuff at Park. And the hourly people, they were mostly working on the storm recovery and cleanup. New replacement equipment will be accounted for, that means capitalized at the time of their purchases and installations. Okay. And then let's go on to Slide 10.

Speaker 1

Total missed shipments in Q1, a doozy of a number, dollars 2,500,000 What were the causes? Well, the first one, the storm related missed shipments, dollars 1,800,000 and that's the big one, of course. And I think we estimated when we did our Q4 call, I don't remember this exact, but maybe $2,000,000 so something like that, dollars 1,800,000 Supply chain and other issues approximately $300,000 This is a little bit of request a little explanation because we said we were to manage our supply chain by carrying inventory and providing loan at lead times. This is actually a case for one of our major suppliers who struggle a little bit to meet one of our customer specs. So it's not that there wasn't effective planning.

Speaker 1

These things have to get worked out over time and they always do ultimately do. International shipments, we talk about this quite a bit. Every quarter, we got wars in the Middle East and Europe, about 400,000. Question, what portion of the supply chain and international shipment issues could have been ameliorated if our park people were not singularly focused on storm recovery? I mean, I don't know the answer to that question, but my guess is it's more than 0.

Speaker 1

That was the focus. I mean, we had to get our factory back up and running, our customers need product. Bottom line is we're very delighted that none of our people were hurt by the storm. That was a good part of it. The timing of the storm was unfortunate as it relates to our Q1.

Speaker 1

Luck was not on our side in that regard. Let's go on to Slide 11. Park's balance sheet, cash and cash dividend history. I was once told or by one of our key investors, they recommended that we cover this every quarter. I thought it was a good recommendation, so we do that.

Speaker 1

We have a 0 long term debt. We reported $74,400,000 in cash and mark up securities at the end of Q1. I always have to remind you though, there is still 9 point $3,000,000 of remaining tax transition installment payments payable from the end of Q1 through June of 25. This relates to repatriation, I think. So a payment of $4,200,000 was made in June 24, but that's not reflected in Q1, June is in Q2.

Speaker 1

So it's a total of $9,300,000 based upon the Q1 reported cash. But there's about so we let's see, the $9,300,000 we paid $4,200,000 about $5,100,000 to in that's payable in June of next year. All right. Parts cash dividend, we paid 39 consecutive years of uninterrupted regular cash dividends without ever skipping a dividend or reducing dividend amount. In bold, Park has paid $594,000,000 or 28 $0.975 per share, cash dividends since the beginning of fiscal 2025.

Speaker 1

My comment is always that's a hell of a lot of money for a little company like Park. Probably in the big company, dollars 594,000,000 a lot of cash, I would think, not chump change as they say. Let's go on to Slide 12. Fiscal year 2025, Q1's top 5 customers, something we are one of our regular features. Avio relates to the Vega launcher, that's a blade of materials, you're probably not surprised to see that.

Speaker 1

Kratos, obviously, relates to the Kratos fire jet, unmanned aircraft, structural materials, materials for the aircraft structures. LifePort that relates to Sikorsky, those are materials for interiors. MRAS, Mill River, we're using a lot of different aircraft. We've got a feature for that or we can feature for MRAS. We chose the COMAC ARGI-ninety one materials for nacelles and thrust reversers.

Speaker 1

NORDAM, the Marbardi Global 7,500 Business Jet, That's materials for GE Passport 20 primary structures for engine components are primary structures for that engine. So let's go on to Slide 13. We'll spend a lot of time on this or sorry, my charts and work charts. The new ones in the middle, Q1, I guess, the only thing I'd point out is commercial a little lower. And I think that's because as a ratio, we lost because the storm, we lost more MRES business, more commercial business than the non commercial.

Speaker 1

We'll cover that later on. Let's go on to Slide 14. Park was niche military aerospace programs. This is always a LENS project. I should mention the top 5 is done this project.

Speaker 1

So let's see, what are we talking about here. The programs themselves, the Aster 30 ablative materials, not surprisingly, Boeing Osprey, Materials for Aircraft Structures, the McDonnell Douglas Harrier II Materials for Aircraft Structures. And this SkyKnight system, multi target short range air defense missile, this is interesting. These are blade materials, not surprising, for a new program and we're making our 1st shipment this month in the program. So that's good news.

Speaker 1

The pie chart itself, as you always say, radones, rocket nozzles, drones, those are niche markets for park, military, but even for us, aircraft structures, we consider to be a niche market as far as military is concerned. Let's go on to Slide 15. Now we talked a lot about supply chain last quarter. Why are we doing it again? Because it's becoming more of an issue, we think, and it's becoming recognized as more of an issue.

Speaker 1

So when you go back over and again, it adds some additional information. Supply chain challenges, they just don't want to go away. Whenever we hear that they're behind us, we find that they're not behind us. We didn't hear we didn't hear back in 2021 that supply chain challenges would be all behind us in 2022. I think we did.

Speaker 1

Then we hear in 2022 challenges would be things that passed in 'twenty three. I think we heard that. There are recent statements for aerospace industry leaders, including GE Aerospace and Avalon, that supply chain issues will persist the end of 'twenty five or longer. That's just since our Q4 presentation earnings call. This is really new stuff.

Speaker 1

Another new item, Safran is building a new turbine blade facility in order to increase turbine blade production since supply chain is just not making it. What are supply chain issues really all about? What's causing them? Why won't they go away? Are they fundamentally workforce issues?

Speaker 1

Have the workforce issues been resolved? So you can have all the great factories and all the equipment and everything else. If you don't, not only people, but trained people to operate this stuff, you're not going to be able to produce the product you need to produce. So there goes the supply which lead to the supply chain issues. Let's go on to Slide 16.

Speaker 1

We hear unemployment is not that bad, but is that the full story? Not really. 7,200,000 able-bodied men are not working, left the workforce forever. Why is that happening? Plus, here's a new thing.

Speaker 1

There is new in this presentation, not new to the industry. The aerospace industry laid off millions of employees, many of whom were highly experienced at the beginning of the pandemic with a benefit of hindsight that was not so brilliant. As you know, Park laid off not one employee, but Park was apparently very alone in that regard. Many of the experienced employees laid off by the aerospace industry have not come back, probably never come back. Really a sad situation.

Speaker 1

Aerospace manufacturing is quirky and enigmatic. What do you mean by that? It needs to be learned over many years. It's not intuitive. You have the smartest guy in town or gal in town, you put them in aerospace manufacturing, they're not going to figure it out just intuitively.

Speaker 1

Just quirky stuff you have to learn over a long, long period of time. What is it like replacing employees who have 25 years of aerospace experience with employees 25 days? That's not a rhetorical question. It's not such a good thing. It's a bear.

Speaker 1

It's very difficult. Because that's reality in some cases. Let's go on to Slide 17. How is that working out? Not so well.

Speaker 1

I see the problem we see it every day in the industry, not pretty. I was just talking to, I guess, he's the Head of Engineering, one of our customers, he was meeting with an OEM with his guys and they were talking about some basic testing procedures for composite materials, very, very, very basic, very basic. I'm not going to say what it was, but and they looked at him like, what is that? And shocked, you don't know what that is? I mean, it wasn't insulting.

Speaker 1

It's just like, wow, these are probably smart people, but they just had no experience. People that left during the pandemic probably had 20 years of experience. So it was really kind of, don't know what you call it, like revealing that to have that discussion. What do ongoing supply chain challenges mean for the aerospace industry? These challenges are impacting program ramp ups and new program introductions as evidenced by the recent Airbus announcement, which we'll discuss below.

Speaker 1

With an example of a defense program and by Patriot Missiles. Have you read this recently that we, the U. S. Government, these are foreign military sales, so the U. S.

Speaker 1

Government has to approve them. We're reallocating them from countries that were signed up for Patriot missiles, supposed to get them. We're taking away their Patriot missiles to give to Ukraine. Now our government said, we're not including Taiwan and Israel. Okay.

Speaker 1

Well, who are we including? Maybe Japan, maybe Korea, lots of European countries. Why are we doing that? Why don't we just produce more of these missile systems because everybody wants them? Well, why are we not doing it?

Speaker 1

Because of supply chain restrictions and limitations. Of course, that would be the preference not to give Ropey or PayPal, to give them to everybody who wants them. These are all approved countries. You're not get Patriot missiles to enemies, but demand is there, but the industry is falling short, demeaning demand. Where is this going?

Speaker 1

Is there any solution in sight? Yes. There might be. I have some thoughts about it. I'm not going to go through them now, but there might be.

Speaker 1

What does this mean to Park? At Park, we found ways to manage our supply chain challenges with better planning, strategically carrying more inventory and providing suppliers long lead times. But these supply chain issues, they threw a major challenge for us and very consuming of our time and energy. Importantly, in some cases, like the two examples we just mentioned, the programs park supplies into are being negatively impacted by supply chain constraints and issues unrelated to our supply chain. These are just supply chain issues that these OEMs have that don't relate to our specific supply chain and they negatively impact these programs.

Speaker 1

Slide 18, let's change gears here. Will spend a lot of time on this slide because we recovered every quarter. So I think we should just to give you the perspective. GE Aerospace, we made a change, used to be GE Aviation. GE Aerospace Jet Engine Programs, such an important part of parts business, so we covered every quarter.

Speaker 1

Just some basics firm pricing LTA, it's a requirements contract from 2019 to 29 with Middle River Aerostructure Systems, MRAS, a sub of SG Engineering Aerospace. And we always explain this, what is this about? All these programs are GE Aerospace programs. How does this happen? Well, when we got on these programs, MRAS was a sub of GE Aerospace and then GE Aerospace, I don't know, 3, 4, 5 years ago, I don't remember, sold MRAS SG Engineering, but they're still the GE programs.

Speaker 1

By the way, I think we mentioned this in the past, but under this LTA, our pricing goes up on January 1, 2025. So we've done the factory, we've built a redundant factory that's in production and we're sole source on composite materials for these programs. We're not going to go into the programs, we talk about every quarter. Nice picture of the legendary Boeing 747 engine itself. We love this picture, but you should get a perspective on the size of these nacelles.

Speaker 1

You see this guy in the background, he was pretty small, doesn't he? Let's go on to Slide 19. No need to cover the first item. The second item, containment ramp for GE9X engines, that's something that could be an important program for Park using our AFP materials. The 3rd and 4th item relate to our film adhesive product forms during qualification and also they've been added to the LTA.

Speaker 1

LIFER program agreement requested by MRSA and SDE, agreement is in progress. Was the life of program agreement to meet the Park? Well, probably a lot. Although, if yes, my personal opinion is that we're in these programs, we're going to be in these programs whether we have an agreement or not. Although it is the intention of MRS and ST that we have a LIFO program agreement, they are the ones who requested it.

Speaker 1

And it's still in progress. I guess that's all I'll say about it right now. Let's go on to Slide 20. Update on GE Aerospace GenEngine programs. The first one is the H320 aircraft family.

Speaker 1

That's a big cahuna, I guess. Airbus has this huge aerospace, that aerospace, that's just so many airplanes. Airbus is maintaining, this is a key point here, that intended to achieve a rate of 75 neo family aircraft deliveries per month in 20 26. And they reiterated that, doubled down on that intention during the recent annual meeting and their Q1 investor call, dollars 75 per month, dollars 26. Now let's go on to Slide 21.

Speaker 1

And we don't have to go through it, just a little history about the delivery rates. I guess the point of interest is in 'twenty three, Airbus finally exceeded 2019, which is a pre pandemic year. And then in the 1st 6 months of 2024, similar to the 1st 6 months of 2023, a little bit more, but not significantly. Clearly, based upon Airbus already would be at that rate of $75 per month if not for supply chain constraints and limitations. Let's go on to Slide 22.

Speaker 1

Here's the big news. Then on June 24, 2024, I mean this is just a few weeks ago, right? Airbus surprisingly announced that it's pushing on its goal of achieving 75 A320 aircraft family, that rate from 26 to 27, the 75 aircraft family delivery rate for 20 6 to 27. Not surprisingly, what did Airbus highlight? Supply chain issues and limitations as the key reason for the push out.

Speaker 1

But what is surprising is Airbus highlighted engine availability related to both the Pratt and the CFM engines as the main supply chain culprit. Why is this surprising? Because that was the case Airbus was saying that was the case, the engines were the limitation. I think maybe a couple of years ago, the engines were limitation. And then maybe about a year ago, they said, wait, we're good with engines.

Speaker 1

Everything's good with engines. The new limitation, what was it? It was castings and forgings, materials, electronics, like maybe semiconductors. And I forgot one other thing, I don't remember. But it was we're not engines anymore, not engines anymore.

Speaker 1

So good, we're good with engines. That was wonderful. Then what happens? We're back to talk about engines as the main problem. Airbus further commented that engine availability significantly integrated in recent weeks and recent weeks that Airbus will end up with gliders.

Speaker 1

You know what that means? They're going to have these airplanes sitting in the ramp and the engine gliders to go on gliders. Airbus also commented the engine storage is a new situation that we're not expecting. So, wow, this much really blindsided Airbus, kind of shocking. This push out of the 75 A320neo per month target certainly is a setback and a disappointment, maybe a little embarrassment for Airbus.

Speaker 1

What push out of the target will provide Airbus with more leeway and runway to achieve its new target, maybe more realistic target. And we believe Airbus will be more committed than ever to achieve this new target without additional delays or push outs. It's just our opinion. I mean, I can't speak for Airbus, but I think you're a little embarrassed by this and probably very upset about it. My guess is they're going to be very, very, very committed to not push it out and push out the at $75 per month target any further.

Speaker 1

Let's go on to Slide 23. What about the engines for the A320neo aircraft family? So as you know, Park is on the CFM LEAK 1A engine. We're not on the Pratt engine, Pratt PW1100 gs engine. We supply into that.

Speaker 1

You had a second item. We recovered that. We have no content on the Pratt on the H320neo aircraft using the Pratt engines. 3rd bullet item, according to the July 24 edition of this is late breaking news of AirEngine News, the CFM LEAP-1A's market share of firm engine orders, A320neo family of aircraft to 63.5% as of May 31. At the delivery rate of 75 A320 family aircraft per month, I mean, we believe I have lots of confidence Airbus will get there, we just don't know when, that 63.5% LEAP 1A market share translates into 11.43 LEAP 1A engines per year.

Speaker 1

What's that work to park? Well, we have something to juggernaut slide. You can look at that later on. Here's a doozy. There currently are, listen to this, 8,156 Brougham LEAP-1A engine orders.

Speaker 1

That's according to Aero Engine News. That's very current. So CFMs, they're going to make all those engines. There's no doubt about it. They're going to get more orders as well, but they're going to make all those engines.

Speaker 1

So what does that mean to park? I mean, I don't have to estimate going back to the look at the juggernaut slide, maybe $250,000,000 So I don't know, does it really matter so much whether it's 26, 27, what the numbers will be 28. Those engines will be produced. And from our perspective, that's the key thing. That's the thing that we feel so far, so fortunate about that we're so, so qualified on those engines.

Speaker 1

Those engines are ours. Those engines will be produced. So we can get really hung up on what quarter it is. And we just don't know, we've been pretty open about that. And we can't tell you something we don't know, we can guess a little bit.

Speaker 1

But to us, the key thing is that those engines will be produced and produced with part materials. Let's go on to Slide 24. The A321 XLR, that's a variant of the A320neo aircraft family. Expect Airbus expects that to enter service forward in 'twenty four. And I just saw an article today that certification is expected in coming days.

Speaker 1

That sounds pretty soon. This is a potentially very important program for Park. COMAC 919, another really important potential program for Park. This is a LEAP engine, but a different kind of LEAP engine they call it LEAP-1C made by CFM. COMAC plants achieved a production rate of 150 919 aircraft per year in 2018.

Speaker 1

They've received over 1500 orders for the 9 19 aircraft according to COMAC. COMAC reported expanding its 9 19 aircraft production lines within the Gethse 330,000 square meter facility in Wudong, China, which is near Shanghai. So I guess one of the key executives at MRAS, whom I work with quite closely, just visited that facility a couple of weeks ago and I met with them afterwards. Very, very impressive. Like what they do in China, I don't know if you have experience in China.

Speaker 1

They build a city that's more of a major program. That's what they do. That's what they're doing. And he was quite confident that they will get to this rate of 150 airplanes per year, which is 300 engines, of course, and maybe more. This guy is usually a little bit of a skeptic, not a pie in the sky type.

Speaker 1

So, yes, as you see, when we get to the juggernaut, we're changing the number to 300 from 200. That's engines, obviously, based on 150 airplanes. That's a really this is a really big important potential program for Park. So one other item I want to mention to you, I just saw this today, which came after press time. Airbus just upgraded their 20 year forecast, now expecting 42,430 airplane deliveries over the next 20 years.

Speaker 1

Single aisle, 33,510 wide bodies, 8,120. Maybe you're right, maybe not, but no matter how you slice it, that's a whole lot of airplanes, a lot of airplanes. You see CFM driving the Airbus A220 aircraft family, the COMAC 919 aircraft buses. What that means is that both these programs use that CFM, the CFM LEAP engine. So it's really up to CFM to get their production rates up to support these 2 very exciting programs.

Speaker 1

Let's hope they do that. Let's go on to Slide 25. Boeing 777X with the GE9X engines. Boeing expects that to be certified next year. Here's something brand new, the 2nd SHIPA item.

Speaker 1

Boeing just received TIA type inspection authorization for the 777X from the FAA. That's a really that's a big deal. And just conducted its first certification test flight for the 777X last Friday. That's breaking news. It's really encouraging because some people are concerned that Boeing has series issues that could bog down the 777X.

Speaker 1

We sure hope it doesn't because it's such an important program, potential program for Park. To me, if I'm Boeing and I'm not, I'm thinking I really want to do everything I can to get to focus on this program because this is their opportunity to be a leader for a long, long, long time. Even if they sort out problems with this MAX, they're still not a leader they're following the Airbus. This is a program where they're a leader. There's nothing like it in terms of payload and range capability.

Speaker 1

I know it's the 2 key criteria for everything like this, nothing like it and nobody's even trying to develop anything like it. So Boeing has a chance to be a real leader for a long, long, long time with this aircraft. And it's a wonderful program for Park if it goes forward. Let's go on to Slide 26. Okay, we see this slide every quarter.

Speaker 1

What's new? Only $5,000,000 of aerospace and engine program sales in Q1. So and we had told you, when we did our Q4 forecast that before the storm, our number was 6.3. Why was that? Because it's fully booked.

Speaker 1

So we had 6.3 is booked, we only shipped $5,000,000 So $1,300,000 that was booked did not get shipped because of the storm. We're forecasting for Q2 $6,250,000 to $6,750,000 and that's basically booked. So that doesn't mean it'll happen. I'm just telling you it's booked. We don't need any more sales to get to those numbers.

Speaker 1

We're doing something a little new here. We're giving you a forecast for the year. We haven't done this in quite a while. Mark and I agonized over this over the weekend trying to figure out what to tell you. But we wanted to give you something for the year.

Speaker 1

We want to 23,000,000 $26,000,000 dollars We felt and we do this, remember we do in the forecast. We're not giving you a low number that we can be and be heroes. We don't do that. We're saying to you, this is what we think will happen. To the best of our ability, this is what we think.

Speaker 1

A lot of issues, a lot of risks, a lot of uncertainties, but that's doing the best we can to tell you what we think will happen. Let's go on to Slide 27. So what are you talking about in terms of Q2? We talked about Q1, so we're going to go through that. Q2, we're forecasting $15,900,000 to 16.4 $1,000,000 We got about $16,800,000 book, but remember at the end of quarter, we always lose some at the end of quarter, because it doesn't ship or international shipment issues, supply chain that kind of stuff.

Speaker 1

And EBITDA, they forecast at $3,000,000 $3,300,000 dollars Little low, but I just want to know that $2,500,000 of C2B fabric sales are in Q2, the sales $2,500,000 Remember, that's where for large OEMs, we buy this fabric and we sell to them pretty quickly at a small markup, so very low margin. Now we actually use our product to make the material for them, then the margins are quite attractive. So this is another thing Mark and I kind of agonized over the weekend. And let's go on to Slide 28. Again, we're doing something I haven't done recently is giving you an annual forecast.

Speaker 1

Let's look at the sales history first because I think it's pretty interesting. If you start 2017 going to 2020, it looks like almost $10,000,000 per year, dollars 31, dollars 1.8 whatever, dollars 40, dollars 51, dollars 60, like $10,000,000 per year. An investor, who I just talked to last week, asked me an interesting question. It's funny, nobody ever estimated before. Where do you think we now after the pandemic?

Speaker 1

Very interesting question because I said, well, I don't know. It looks like we're growing $10,000,000 per year. I don't know what we stopped at. So we'd probably be at $90,000,000 to $100,000,000 in 2020 for our guests. If you just extrapolate, we never know, of course, hypothetical, can't go back and rewrite history.

Speaker 1

But then you could see in 2021, the pandemic year. And 2022, 2024, we're still not getting out of the pandemic malaise. The pandemic is over, but we screwed it up so badly with all the people we hired, creating these sorry, all the people we fired or the not parked, the industry fired, laid off, let go of. So we're really struggling to recover because of all these supply chain issues that we created by maybe not responding, reacting to the pandemic in the best way. Now it's not a criticism because the time the pandemic was so frightening, so scary that we can't really blame people for reacting the way they did.

Speaker 1

But with a bit of hindsight, I'm saying it was probably not the best reaction. So we actually were looking to provide you with a 3 year forecast in this presentation. But with the push out of the Airbus target of 75 airplanes per month. And also supply chain issues being elevated. We chickened out on that and we decided that gives you a forecast for $25,000,000 $60,000,000 $65,000,000 $13,000,000 to $15,000,000 EBITDA.

Speaker 1

And again, we're taking some risk here, but there's so much uncertainty. But again, what we're doing is doing the best we can to tell you what we think will happen, not giving you a low number that we can be heroes and wonderful and everything else. Important things at the bottom, supply chain limitations affecting the irritates industry. Yes, we just talked about that when we look at the top line progression. Next one, ramping up costs for the juggernaut.

Speaker 1

That's not going to affect top line, but it affects bottom line. We ramp up the cost before the sales and obviously that makes our company less profitable on a temporary basis. Let's go on to Slide 29. Okay. Your GE Aerospace Engine Programs revenue outlook, the juggernaut, we've been talking about this for several quarters.

Speaker 1

What's the timing for the outlook? We're not sure, but the juggernaut is still coming. It can't be stopped and we better be ready. So we just spent a lot of time talking about what quarter is going to hit and we just don't know. But I will tell you one thing, in my opinion, Park is so, so, so, so fortunate to be sole source qualified in these wonderful programs.

Speaker 1

So when will they go to the moon? We don't know. But these programs are very these are the programs you want to be on. And we're so very fortunate and lucky to be on these program. So maybe not in other programs that we won't mention, but you probably know what I'm talking about.

Speaker 1

Let's go on to Slide 30. Here's the juggernaut. Just a couple of changes here. Well, a couple of things I want to highlight. First of all, A320neo, see, we're looking at using that 10.80 number.

Speaker 1

That means that's using 60% market share for LEAP engine, 75 airplanes per month. Just doing the math, you do what you look you can do in your head. That's was it 900 airplanes per year times 2 engines, that's 1800 times 0.6, that's meaning 60% market share, that's your 10.80%. Now earlier in the presentation, we said, well, it's really not 60%, it's 63.5%, and that translates to 11% to 43%. But we're going to use 10.80% just so we don't have to update and revise this page just like every time we do a presentation because every month that percentage that market share percentage is going to change.

Speaker 1

Somebody made a comment that I was trying to be conservative. No, not really. It's just that we didn't want to go through this process of every recorder having to update, change the assumption in the slide. Because every month, the market share that we get from mirroring and use is going to be different. I noticed also the C919, we had 200 units, now 300 units.

Speaker 1

On the ARJ21, we didn't change the 70 2, but I just want to point out that we saw a recent report that COMAC delivered 35 airplanes per year in both 2022 and 2023. That's obviously, what, 70 engines and that does include spares. So we may move that number up at some point. We're not doing that now. Okay.

Speaker 1

And then if we go on to Slide 31, our park maintenance crew thank you, park maintenance crew, for leading this storm recovery effort and cleanup effort. Great guys. I think you could probably figure it out just looking at them. But I also would say this is not totally representative because as we mentioned earlier, it's really all the hourly people that worked on the storm recovery and cleanup. Okay, operator, that concludes the review of the presentation.

Speaker 1

If there are any questions, we'd be happy to take them.

Operator

All right. Thank you. Now we'll be conducting a question and answer I'm not seeing any questions. I'd like to turn the floor back over to Brian Storff for closing comments.

Speaker 1

Okay. Thank you, operator, and thank all of you for listening to our Q1 investor call and going through the presentation with us. You all have a great day. If you have any follow-up questions, please give us a call. Thank you.

Speaker 1

Take care.

Operator

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

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Earnings Conference Call
Park Aerospace Q1 2025
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