Park Aerospace Q4 2025 Earnings Call Transcript

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Provided by Quartr
May 15, 2025

There are 4 speakers on the call.

Operator

Good day. My name is Claudia Guntit, and I will be your conference operator today. At this time, I would like to welcome everyone to Park Aerospace Corp. Fourth Quarter FY 'twenty five Earnings Release Conference Call and Investor Presentation. At this time, I will turn today's call over to Mr.

Operator

Brian Shaw, Chairman and Chief Executive Officer. Mr. Shaw, you may begin the conference.

Speaker 1

Thank you, operator. This is Brian, and welcome everybody to Park's fiscal twenty twenty five fourth quarter investor conference call. I have with me Mark Escoval, our President and COO. Right after the close, we announced our earnings. We did a news release announcing our earnings.

Speaker 1

You want to take a look at that. In the earnings release, there are instructions as to how you can access the presentation, through a link or through a website. You want to take a look, you want to get that up in front of you before you go through the presentation. And after we go through the presentation, could take maybe forty five, fifty minutes, just want you to be aware of that. Mark and I would be happy to answer whatever questions you might have, okay?

Speaker 1

So why don't we go ahead? Slide two, forward looking disclaimer language, we're not gonna go through that but certainly let us know if you have any questions. Slide three, the James Webb Space Telescope. It seems like we're featuring this every quarter. There's so much news, as you probably know, the James Webb Space Telescope was built with, constructed with our Sigma Strut, which is our proprietary Strutch technology.

Speaker 1

And so what's the news this time? We got a little bit of a picture of the James Webb in the L2 range orbit which is about a million miles from Earth I believe, it's pretty far away. 97, I'm sorry, 99.7, that's a pretty high percentage, pretty good odds. Chance of alien, listen to this, alien life, this is no joke, on a Milky Way planet, that's in our galaxy I guess we call K2 18, that's the name of the planet. I'm sure you've heard plenty about that.

Speaker 1

It's only 124 light years away from Earth. That's just right around the corner, it's in our own galaxy. Thank you, James Webb. So what James Webb apparently did was it detected certain kinds of gases which are only produced by biological processes. It's quite incredible.

Speaker 1

You know what's also kind of strange? Do you hear about this on the news every night, like all day long, all night long? Life on another planet, 99.7% certainty. I don't, I hear nothing about it, I don't know what they cover in the news, but you think this would be like 20 fourseven news, but it seems to not be. Anyway, table of contents, our investor presentation, we're about to go through that.

Speaker 1

And then we have supplementary financial info at the back of appendix one. We don't go through that during the presentation, but certainly let us know if you have any questions about it. Okay, let's go on to slide four. Quarterly results for '23, '20 '4 and '25 in thousands. Let's go right on to the right hand, right over to the right hand column, Q4 which is the quarter we just announced.

Speaker 1

Sales $60,000,009.39. Important to mention that we'll get to that later again, but 4,400,000.0 of those sales were C2B fabric. And then we have a gross margin of 29.3% which considering we'll go back to this, but the C2B fabric we sold that, it sold that only for a small markup considering that. Actually I was surprised at how high our gross margin is. As you know, we don't like it when our gross margin is under 30%.

Speaker 1

But under circumstances and also the startup cost that we'll go through, was surprised as myself as to how high it was. I suspect the main reason was the fact that production was very strong and it exceeded sales which was our plan. We'll talk about that in a second. What did we say about Q4 during our Q3 investor call? Sales estimate 15,500,000.0 to $16,300,000 so we came a little bit ahead of that range.

Speaker 1

Adjusted EBITDA estimate 3,300,000.0 and $3,900,000 so we came in within the EBITDA range. I got to stop and cover something which we used to cover every quarter and I figured okay, fine, I've overdone it. But we had a couple of comments after our Q3 investor call to the effect that well we should pad our forecast numbers. So we've got to go back and remind you that we don't do that. We don't do guidance, we don't like that.

Speaker 1

It's kind of a strange game that, in other words, if we believe the quarter will be X, we're supposed to tell you X minus 10% so that when we come out with X we'll be heroes or we beat our numbers. And to us it seems very strange. Other people, they do whatever they want. I know almost everybody else does, but we don't do that. We give you a forecast.

Speaker 1

What we're telling you is this is what we think is going to happen, not what's going to happen minus 10%. We don't do that. So we just want you to be aware of that and we don't feel like changing it. We also feel it would be a little bit strange for us if we're telling you what tell you that it's gonna be x minus 10%. Well that's not really honest, is it?

Speaker 1

When we have a thing about integrity. I'm not saying other people don't, I'm just saying that's for us. So when people say, oh why don't you pad your numbers? Understand, we're not gonna do So when we tell you, give you a forecast, we're saying this is what we think will happen and we'll be wrong sometimes and sometimes we clearly are. But the time we tell you that we're saying this is what we think is gonna happen.

Speaker 1

So we just want to remind you that. We used to discuss it every quarter. We haven't in a while but maybe need to remind you again. Slide five, considerations for Q4. So let's get right to it, production versus sales.

Speaker 1

Remember in Q3 we explained that our Q3 sales value of production, we call it SVP, that's not inventory value, that's a sales value. The 1,200,000.0 less than our sales at Park production, SVP absorbs a significant amount of cost to produce inventory. As a result, just reviewing Q3 for perspective here, the Q3 production shortfall had a significant impact on our Q3 EBITDA. The Q3 reduction shortfall was on us, we said that during our Q3 call. In other words, we just missed a number.

Speaker 1

We had a production target, we didn't get it. That's on us. We missed our target. But we also said we tended to reverse that in Q4. Well, we did reverse it and that is on us as well.

Speaker 1

So we take the responsibility for missing the target in Q3. Our people should get the credit I think for hitting the target, our target in Q4 and doing a very great job with that actually. So in Q4 our production exceeded our sales, adjusted for rate card fabric which is not something we've reduced anyway, as you know, by 1,400,000. That was our target and that's really helpful. That drops a lot of dollars to the bottom line, probably $350,000 or more to the bottom line in the quarter.

Speaker 1

Just as we had a big drag in Q3, there's a big plus in Q4 which is what we wanted. On to slide six, the excess reduction in Q4 had a significant positive impact on our Q4 EBITDA. And this is important, the excess production also allowed us to build back our finished goods inventory to more acceptable levels by about a million dollars compared to Q3. It was way too low at the beginning of Q3. We're selling from our inventory rather than production.

Speaker 1

Now we've built back our inventory to finish goods to levels we think are more acceptable. Aaron Group, just reviewing here. As you know, we entered into this business partner agreement with them in '22 under which they appointed us as their exclusive North American distributor for the Raycorp C2B fabric used to produce ablative composite materials for advanced missile program systems. Now, already covered this but we sold $4,400,000 of C2B fabric in Q4. That's actually 500,000 more than we predicted in our Q3 investor presentation, ended up being more than that.

Speaker 1

And believe it or not, 7,500,000.0 in all of '25, that's a lot, that's a whole lot. It really merges our P and L. As we've previously explained, we sell C2B fabric to our defense customers for a small markup. They're buying a lot of the stuff, your stockpiling obviously, you know, doesn't take a rocket science to understand that even though this is rocket science, that's what they're doing. So, slide seven, parks sold.

Speaker 1

This is the flip side, 420,000, it's not 4,400,000.0 but 420,000 of materials manufactured with C2B fabric in Q4, two million twenty five. So that's really good because when you look at it incrementally that contributes a significant amount to the bottom line probably over $300,000 So that helped the bottom line a lot as well. That we said some C2B material sales As we previously explained, our margin for reducing cell and ablative materials manufacturing with C2B fabric are significant in bold. REQUAL by one of Park's key customers of C2B fabric. So, I gotta stop for a second.

Speaker 1

You read those transcripts, you're doing your own risk because we have no responsibility for those transcripts. There's an automated computer AI, I don't know what, but there's so many mistakes in those transcripts. Sometimes I'll go read a transcript, I don't even know what the hell I'm saying, I can't, what am I talking about here, I can't understand. There's so many mistakes in those things. So we don't take any responsibility for them.

Speaker 1

So the transcript was for Q2, Q3 or other call, talked about a recall of C2B which is a real bad thing, no recall. We went back, there's no reference to any recall, no recall, both in the presentation as well as our comments. But then it was picked up by articles who then talked about a recall of this product based upon transcript was incorrect. So I just wanna warn you, if you read those transcripts, you do it at your own risk because we take no responsibility for them. Now, what's the status of recall?

Speaker 1

A lot of people ask me that, that's a hard question. So I'm gonna ask Mark to help us figure that one out. So Mark, can you tell us what the status of the recall is?

Speaker 2

Yeah, hello everybody. The status here, the specification has not been updated. What that means is it's still in the works. Where the testing is not in Park's hands, it's in our customers' hands, just so that's clear. But we are being told they should be completed this month at the May.

Speaker 2

I say that with a little bit of caution because these things have slid in the past, so I just wanna throw that out there. But we're looking to give an update at the end of the month. I can tell you there is some good news. All the testing that has been completed, which is the majority of it, is compliant to the specification. And, so we're we're you know, we're hoping that, you know, the very few tests that need to be, done by the end of the month will fall in that same population.

Speaker 2

So essentially, we're, you know, we're anxiously awaiting just like everybody else to get the results and, you know, we're really hoping that, they meet the target at the end of the month. But like I said, it's really out of our hands. It's in our customers' hands, but we we continue to communicate and continue to check on the status, and we'll do that again as it gets towards as it gets towards the end of the month, which is in two weeks. And, you know, hopefully, the next time we talk, next time we have a call, we'll we'll have an update for you all.

Speaker 1

Okay. Thanks. Yeah, so we're being transparent. We're just all we can do is tell you what we are told by our customer. I think in our last call we said March, but that's what we're being told.

Speaker 1

Obviously, that didn't happen, so we'll see what happens here. And then the next item, this is a repeat item for the last few quarters, just reminding you that we're ramping up this new factory even though we don't need to. For capacity reasons, we're ramping up to get the factory ready for the Juggernaut, as we call it, And that's burdening our P and L. Total miss shipments during the quarter $175,000 mostly surprise, surprise international shipment issues. Well, that's actually improved, that's not great.

Speaker 1

But I think we had a couple of quarters it was over a million bucks, so I guess that's moving the right direction at least in that quarter. Slide eight, impact of tariffs and tariff related costs on Q4, there were none. Future impacts, we'll get back to that later on the presentation when we talk about some updates. Let's go on to slide nine, top five customers. This is kind of a tradition for us in alphabetical order.

Speaker 1

Donna's the one who does the slide. Probably get some of the people in the audience could probably cover this better than I could. Aerojet Rocketdyne, that's the Patriot missile. Middle River, I guess we're using the A321XLR commercial aircraft, Kratos obviously the fire jet. Nothing for TEXTAC to Confidential, NORDAM, the Bombardier Global 7,500.

Speaker 1

The aerial target aircraft, you know it's unmanned. They try to get men and women to fly the target aircraft but didn't get any volunteers. Okay, that's my attempt at humor. Let's go on to slide 10, promise I won't do any more of that. So slide 10, this is our estimated revenues by aerospace market segment and you can see that we talked about this all, but 'twenty one was a little different due to the pandemic, but 'twenty two, 'twenty three, 'twenty four and 'twenty five, the pie chart looks pretty similar.

Speaker 1

Let's go on to slide 11. This is a latest sub project. Parkla has niche military aerospace programs. And as we always comment radomes, rocket nozzles and drones are niche markets for us. But for us even aerospace structures are niche because that's our focus.

Speaker 1

This doesn't mean small, it means something special where we have something special to bring to the table which means normally that the margins would be nice and attractive for us. We don't need to cover each one of these things and we're gonna be a little bit less open about what our participation is in these programs except I'll comment on the HALCON Sky Night. That's a UAE program, so that's been in the news recently UAE, so I thought you'd be interested in that. And then we see two references to the Sentinel GBSD, that's ground based strategic defense. And this is a replacement of the Minuteman program from the 60s.

Speaker 1

We have on the top right the warhead, a reentry vehicle for the warhead and then the missile itself, missile system itself. And these are installed in silos around the country, hundreds of them is what's intended. And I think you know what these warheads carry, so you can look it up if you want. But it's not a very happy kind of thing to talk about. So let's go on.

Speaker 1

Having said that, maybe bring the audience down a little bit, let's go on to slide 12. It's called MAD, mutually assured deterrent or something like that, right? Remember that from the 60s, anybody remember that? Slide 12, GE Aerospace. This slide we share with you every quarter just kind of for background.

Speaker 1

For pricing LTA from '19 to '29 with Middle River Air Structure Systems, which is a sub of ST Engineering Aerospace. We explain this every time. Resident factory, that's a reduction, you know that. Look at these programs, we're not going go through them, but what the common theme is, they're all related GE Aerospace programs. So what's the connection there?

Speaker 1

I think you know that. When we got on these programs Middle River Aerostructure Systems, MRAS, was a sub of GE Aerospace. Now it's a sub of ST Engineering, which is a Singapore company. Let's go on to slide 13, top of the slide, also sole source or primary structure component for the Passport 20 engine. That's through the GE Aerospace LTA not the MRAS LTA.

Speaker 1

Fan cased containment wrap for the GE9X for 777X aircraft, that's produced with our AFP materials and other composite materials. And this is intended to be included in MRAS program agreement, not the LTA. This actually occurred after the LTA was entered into. Let's see, Park MRAS LTA, we covered this provided 6.5 weighted average price increase January 1. And also it was amended to include three Park film adhesive formulation products recently.

Speaker 1

Life of program requested by MRAS and SDE, so we're still working on that. I think the last time we spoke I told you actually the ball is in our court, we're getting pricing to the extent we could, long term pricing from our suppliers so we could provide pricing to life of program pricing to MRAS and SDE. We've done that so the ball's kind of back in their court. We're happy either way, we're happy to stay with the LTA, the current LTA or go to LIFER program. This is something requested by MRAS and SDE but we're happy to do the LIFER program as well, either way we're happy.

Speaker 1

Slide 14, okay, we're talking about some of the programs, A320neo family, that's the big dog as we say. Airbus has a huge backlog for the A320neo aircraft, 7,256, that's a lot of airplanes, I'm telling you. And then we have a little bit of history of their A320 deliveries year over year, you can see that it's gone back up to about 50 per month and 24 a little over 600. But what's holding it back is the supply chain issues that you know about. We talk about almost every time.

Speaker 1

The bottom right on the targeting delivery rate of 75 A320 Airbuses, family aircraft month to 27. Why they're not there now? Well, it's because of supply chain issues. They have over 7,000 orders, they'd be happy to be at 75 per month or 900 per year now, but they haven't been able to get there yet. They're targeting twenty twenty seven, they haven't been able to get there if your supply chain is the limitation.

Speaker 1

Slide 15, with approved engines, for Editor twenty you know about this, we've the Pratt engine, the CFM LEAP-1A engine. We're on the CFM LEAP-1A not the Pratt. According to the Aero Engine News, first quarter Aero Engine News, the LEAP-1A market share Affirm engine orders, these are thousands and thousands of orders, ladies and gentlemen, 65.2%. That's a nice market share. When we get to the juggernaut slide at the end we use a 60% market share at least for being conservative but it keeps me going up a little bit it seems like maybe it'll move back down, I don't know, moves from quarter to quarter, month to month.

Speaker 1

But at the delivery rate of 75 airplanes per month, 65.2% LEAP-1A market share translates into eleven seventy four engines per year, LEAP-1A engines per year. If you look at the Juggernaut, we're only assuming ten eighty, so it's a lot more than the Juggernaut. As of March 3125, this is again aeroengineering stuff, there were 8,196 LEAP-1A engine orders. That's as of a couple months ago. Now, of course, Airbus and CFM, they wanna sell more airplanes and more engines.

Speaker 1

This is just what's on order, firm order now. Now, so these engines will be delivered, think. What's that worth to park? It's worth about a quarter billion dollars to park. And that's not it.

Speaker 1

Mean, I said, I'm sure Airbus wants to sell more airplanes and the CFM wants to sell more engines. Let's go on to slide 16. This is a variant of the A321neo family, the A321XLR. It's off of the races so this airplane has been delivered, it's in operation, they're operating it on new routes which have never been used by a single aisle. This is single aisle airplane, I guess I should have said that.

Speaker 1

And the key thing here is that it has a range and payload capability of a wide body. So, this airplane's been used on what was previously a wide body route like maybe a seven eighty seven route, but much less expensive to operate. So this is why CNN, I don't normally spend a lot of time with CNN, but this time I liked them, A320 and XLR changing air map of the world. And what that means is that these single aisles are operating on routes that used to be the exclusive purview of wide body airplanes which are much more expensive to operate. That's a big, big deal.

Speaker 1

Boeing has no response and unplanned. So that's an important program for parts, slide 17. Let's switch over to China, the Chinese, COMAK, the Chinese aircraft company, C919, that's a single aisle that they developed to compete against A320 and seven thirty seven. And they're just ramping up now, they're targeting 30 deliveries and 25. They're not going to get to 900 but we'll see how far they go.

Speaker 1

They plan to increase their production capacity of 50 airplanes this year, plan to achieve production rate of 150 aircraft by '28, report to have over 1,000 orders for these airplanes. Comeback aiming for EASA certification '25, that's significant because see EASA, that's like the European FAA, European Aviation Certification Agency. Because there was this belief in theory that these Chinese airplanes were gonna be China only airplanes, that we just operate in the Chinese market. That's clearly not what Comac is thinking, you know. So the fact that they're saying they're gonna get EASA certification is a big deal, certification outside of China.

Speaker 1

Trade conflicts, people ask about trade conflicts. Well, can come back produce at 09:19 without US suppliers? The answer is absolutely not, absolutely not, absolutely not. And if US suppliers were cut off on the program, in my opinion, I'm not the only one who has this opinion though, that program would die forever immediately. It's such an important prestige program for the Chinese, they're not gonna let that happen.

Speaker 1

It's a good thing that there's trade where there's, what do you call it, a mutual interest dependency where we need each other. So the Chinese will not let that happen. So they're gonna need to continue to source these key components from a US supplier, that's my opinion anyway. Flight 18, staying with the Chinese, Combat nine zero nine, that's the regional jet, it's a little smaller jet. And look what they're doing, they have it delivered to Lao Airlines and Vietjet, Laos in Vietnam.

Speaker 1

So they're not Chinese, so what's going on there? In other words, again, everybody was saying, oh, these are Chinese only airplanes, I don't think Comac believes they are. The 777X with GE9X engine, test flight certification program reportedly progressing well. 777X test program amassed more than 1,300 flights, that's a lot, you know, on three hundred flight hours. They're targeting 26 for Boeing as for certification first delivery, let's knock on wood on that, let's hope that happens.

Speaker 1

They reportedly have five twenty one open orders, that's of about last week. But did you hear that Boeing, they hired this new high powered sales guy? And that guy, he just got an order for 30 airplanes from Qatar yesterday, think, Qatar. Pronounce both ways. Did you hear about that?

Speaker 1

The new high powered sales guy. So they have to add that 30 to the five twenty one. Slide 19, GE Aerospace program sale history, you're familiar with these numbers. Fiscal 'twenty before the pandemic we popped out at $29,000,000 we're kind of clawing, trying to claw our way back, dollars 25,000,000, 20 4 point 7 million, not quite there yet. The Q1 forecast 5.2 to 5.6, that's not, that's kind of a little bit anemic.

Speaker 1

I wouldn't read too much into it quarter to quarter. There's a lot of issues relating to inventory management and things like that to move the numbers up and down that aren't really indicative of longer term trends. The forecast for '26 we're going to stay with this 28,000,000 to 32,000,000. That's what we gave you last quarter. Although you can see we're starting out slow in Q1.

Speaker 1

That forecast is based upon the information provided by our customer. And actually our customer provided us three scenarios low, middle, high, that's a low scenario. I don't know, maybe we'll have to adjust it down later on if we continue with this like Q2 looks similar to Q1. We'll have to see, because like I said, we're getting off to a little bit of a slow start. But we're staying with this forecast for now.

Speaker 1

Okay, slide 20, now we're talking about PARCC's financial performance history and forecast estimates. The history, know the history, so we won't spend a lot of time on that. We already talked about the quarter, we already talked about the fiscal year, so why don't we just go right to the forecast, our forecast for Q1? '15 to '16 million sales, 2.5 to 3,000,000 of EBITDA, that's our forecast for Q1 for Park. We already talked about how in the historical sales, how much C2B content was in historical sales for the last year and last quarter.

Speaker 1

But if you look at the last footnote on the slide, we're also talking about $1,200,000 of C2B fabric sales expected in Q1, so of course that affects our bottom line, holds our bottom line back a little bit. Let's go on to slide 21, historical, so now we're looking at historical results with a fiscal year emphasis. And we already pretty much covered most of this, 62,000,000. Oh, I know this is a good slide to look at to get perspective about our using our new factory. Because if you look at '25 our sales were 62,000,000, but about 7,500,000.0 were C2B that's not produced so that means equivalent to about 55,000,000.

Speaker 1

And go back to fiscal twenty, '60 million but the new factory didn't exist at that time so all that 60,000,000 was produced and sold with our existing factory. You see what's going on here? We used a new factory. We're bringing the factory online because we're ramping it up for the juggernaut but it's holding our P and L down. There's a lot of extra cost involved with bringing a new factory online.

Speaker 1

Just a good illustration of that I think. Let's see what else we got here. Important piece, supply chain limitations, yeah. Again, at the top line, sales 31,000,000, 40 million, 50 1, 60 million, really moving in the right direction. Then look what happened, we got all caught up with a pandemic and we're just trying to call it a way back now.

Speaker 1

Ramping up costs for the juggernaut, we talked about that. And then we talked also about how much of our fiscal twenty five sales were C2B fabric. Let's go on to the next one, slide 22, some general updates. New agreement with Ariane, so we talked about our existing agreement. The first check item we already covered that, so we don't have to cover that again.

Speaker 1

Next check item, then we entered into a new agreement just recently and on this agreement Park will advance, is advancing Darien 4 million 5 hundred and 80 7 thousand Euro. Why are we doing that? Those funds will be used by Aireon to help finance the purchase and installation of new manufacturing equipment for Aireon's production of C2B fabric. That amount is to be paid to Aireon in three installments, the first of which was paid in Q1. That's equivalent to about $1,500,000 So again, when we get to our Q1 balance sheet you're looking for that, that $1,500,000 expenditure be reflected in our cash.

Speaker 1

The purpose of this new agreement is to provide the additional C2B fabric manufacturing capacity necessary to support the rapidly increasing demand for C2B in Europe and North America. Slide 23, more general updates. This is kind of a nice one, maybe not a huge deal, but our lightning strike protection material was certified on the PAS four twenty engine for the Global 7,500 business jet. That's worth about $500,000 per year that'll kick in later this year. We're very pleased about that because it was taking for so long, I never would say this to anybody but in my own mind, my little private moments, I was probably just giving up on whether it's ever gonna happen at all.

Speaker 1

So that was surprisingly good news, when someone called me and said, hey, you know, this got through fires and what, that must be a mistake, it wasn't. Parts of blade of composite materials sole source qualified, we talked about this before, that's next generation United Dome. And then Park entered into an agreement with a major OEM licensed technologies for hypersonic missile programs. We understand we're the only licensee. Phase II manufacturing trial and testing of licensed technology continues.

Speaker 1

We mentioned the same thing last quarter, so appreciate it, Mark, if you can give us an update on how the trials are going.

Speaker 2

Sorry about that. I was on mute. Didn't want to have any background noise. So the trials on this are going really well. Again, we licensed the product, so the formulation work was done ahead.

Speaker 2

So what the phase two is, we're building laminates, we're making material, and we have a partner for that as well, because this will require investment once we get to the point that we've industrialized the project or the product. So we are building panels now, we're making material, I think we're getting to the place where we're gonna start testing the materials because it takes a little bit of time to figure out these processes. This is an OXXOX product, it's not a standard epoxy, which is the majority of our business, so it's taking a little bit of time to figure out how to process these materials. It's it's a lot different than what we're used to. So I feel like we're making really, really good progress with it.

Speaker 2

And, you know, the next steps, you know, maybe in in a few months, maybe about six months, we'll have a better update that, you know, where we're at, you know, once we kinda button up the processes and get some of the test data and, you know, potentially, you know, have a product where we could, you know, release a data sheet, meaning that, you know, we can go to the public with it. In the meantime, we are talking to a few customers, a few OEMs, you know, a select few partners just to, you know, kind of figure out what their needs are with this product. You know, that helps us develop our test matrix and helps us decide, you know, what kind of panels we need to build. So but again, we're being very selective who we're talking to because we don't wanna, you know, go out to the market when we're still trying to work out the the details of the product, know, the the fine tuning of it. So like I said, maybe about six months we'll have a better update and give you guys a sense of where we're at with this project.

Speaker 2

But we're definitely making progress with it.

Speaker 1

Okay, thanks Mark. Why don't we go on to slide 24. We covered this last quarter expecting about $5,000,000 per year from the new LTA with GE Aerospace which is different than the MRAS LTA. So we're in discussion with two large Asian industrial conglomerates related to Asian manufacturing joint ventures. This would be a joint venture to do what we do in Asia, produce preprep for aerospace.

Speaker 1

They approached us, both these companies were in active discussions with them. We're not intending to contribute any cash, so it would just be our IP. We'll see how it goes, maybe it'll happen, maybe not, but I thought at least we mentioned it to you. Current MRAS supply scorecard, rather, 100, one one hundred, that's what we need. We need that 100, one hundred, one hundred.

Speaker 1

That's very unusual, I think we discussed that before, but that's kind of our mindset. That's our philosophy. We're not looking for 90 nine's, we're not looking for 99 nine's, we're looking for hundreds. That's all that If it's less than 100, we're unhappy and we'll be talking to the customer about, okay, what happened, how do we fix it? I'm not kidding.

Speaker 1

Ninety nine point nine, we're gonna talk to the customer. I've been told, you know, a lot of most suppliers be happy with the eighties. Tariffs, back to you Mark, all the hard ones get through to Mark. Tariffs, international trade conflicts, expected impact on Mark's sorry, on parks. Said in Q4 there was no impact, but let's talk about what we think going forward about tariffs.

Speaker 2

Okay. Tariffs, I guess just like everybody else, we're all learning and trying to sort this out. We feel like we did a pretty good job getting ahead of it when we saw it coming. I think it was, early March. We started updating our order confirmations, our quotes, you know, putting a note on there telling customers that, you know, if any tariffs come our way, we're gonna pass them along to them.

Speaker 2

And, to date, we've been pretty fortunate. We haven't seen too many letters come from suppliers. We've had a few, but there has been no impact, you know, to our business. Essentially, I think there's been one, maybe two we had to pass along to a customer. The rest, we were able to mitigate the tariffs with inventory on hand.

Speaker 2

Obviously, when you carry inventory, don't have to pay a tariff because you have it there. So we're able to get those orders processed and shipped out without buying new material. And then so the next step was, well, now we have to update our cost if we have tariffs, which is again, it's only a few materials right now. So our quotes are reflective of that moving forward. So the customers will be paying, you know, the new price, you know, when they place orders.

Speaker 2

So, essentially, you know, we're just like everybody else, we're trying to figure this out. But, again, we we I think we've done a good job getting ahead of it and, there has been no impact to the business. But again, you know, there's more to come. You know, the this thing's still pretty dynamic. We're not sure how it's all gonna shake out.

Speaker 2

So, you know, we'll probably have to give you, you know, maybe another update on the next call as well to see if that has changed. But, you know, again, we feel like we're in pretty good shape with this and, you know, we continue to talk to our suppliers and we don't see anything else coming our way. But I can't say that, you know, with a % confidence, but we feel pretty good about where we're at today with this. So I think that's the update.

Speaker 1

Okay, thanks. Okay, thank you. Let's move on to slide 25. So we covered this last quarter. Said we have a new emphasis on defense markets and programs.

Speaker 1

Why is that? Well, there aren't any new commercial aircraft that we're even aware of, the 777X were on that, the 09/29 will never get on that. I'm not going to go into that now, but that won't happen. But we see significant opportunities in the military defense markets, especially related to missile programs, what's our focus of bladers and hypersonics, how is that emphasis working out for PARCC? Well, actually remarkably well and we'll get back to that a little later on in the presentation.

Speaker 1

Slide 26, recent questions from investor, we love questions, often we think well, three or four other people probably thinking, or maybe 30 or 40 other people the same question, they just don't want to ask it. Will a C2B fabric manufacturing equipment funded part by parks advanced to Aereen Group be located at Arian's facility or parks facility? That will be at Arian's facility. Who will own and operate the new equipment? Arian will.

Speaker 1

Next question, the Park MRAS LTA provided for 6.5% weighted average price increase. Does the LTA provide for any further price increases through '29? No, except for price increases related increases in cost of certain raw materials Park uses to produce products for MRAS. What about the life of program agreement? Well, with the life of program agreement a little bit different because there are different price adjustments to the life of program agreement.

Speaker 1

If we enter into it, maybe we'll, maybe we won't. Like I said, we're happy either way. We're happy with life of program, we're happy with the current LTA. You mentioned that Park is a true blue American company. Not to Park's knowledge, only one of Park's competitors is an American company who's that.

Speaker 1

We believe Hexcel is an American public company. Not aware of other, Hexcel's a much larger company but a slow competitor. We're not aware of other competitors that are owned or US owned. Let's go on to slide 27, Park share buyback. So history, we spent let me just kind of go through this quickly so we don't get too bogged down.

Speaker 1

But this 05/23/2022 authorization, we spent $9,296,000 on it. We spent some real dollars on this thing now. And then in Q1, it's not reflected in our Q4 report in Q1, spent 2,100,000.0 or 2,165,000 just in Q1 alone. We'll see that again in our Q1 report when we talk about our Q1 cash. And just so you know, that 2,165,000 included in the total 9,000,296.

Speaker 1

Okay, so we continue to buy back stock, well let's revisit that. Parks and credible cash dividend history, yeah, we'll cover this every quarter I think. Forty consecutive years over $600,000,000 since the last one year is $29.47 per share. It's quite incredible for a little company like Park. Here the founders started their company in '54 with I think $40,000 that they had left over from war duty.

Speaker 1

So that's a company that has paid over $600,000,000 in cash dividends in the last twenty years. Let's go on to slide '29. Okay, here's a big one. I would say it's a real big one. New manufacturing expansion of parts manufacturing, major new expansion rather of parts manufacturing facilities.

Speaker 1

Park is planning a major new expansion of our manufacturing facilities. Planned expansion will include a plant and it could be at our Newton, Kansas campus or elsewhere. We have our road warriors out there now looking at other locations. Kansas versus remote. It'll be a very difficult decision to make because the economics of Kansas be better, but there are other maybe non quantifiable factors which would make remote better.

Speaker 1

So we're gonna have to figure that out, working on it now. Will it be a challenge to recruit additional employees? Oh yeah, it'll be a challenge. That's one of reasons we're looking at it remote as well because we think well maybe if we have two locations it might be easier to staff up to the extent we need. The plant expansion will include the following new manufacturing lines, solution treating, hot melt film, hot melt tape, hypersonic materials manufacturing line and support equipment.

Speaker 1

Mark was just talking about that. Let's go on to slide 30. Preliminary estimate of capital budget for the new manufacturing plant equipment, 35,000,000 plus or minus 5,000,000. So we're talking about some very, very big numbers here for Park, very big numbers. Why are we doing this?

Speaker 1

Our long term business forecast requires it, that's why. Significant new business opportunities for both hot melt and solution composite materials, defense and missile programs or drivers. Remember a few slides ago, where you asked me, how's that working out for us? Well, it's working out for us pretty well. So our focus is paying off big time.

Speaker 1

Why are we doing it again? Have the flexibility to be in a position to take advantage of new opportunities as they arise. We're not in a position to take advantage of the opportunities when they arise, we're not gonna, we won't get the opportunities. Have the flexibility to provide 100 to 101 support and service for the GE programs. Very important for us, we don't want 99.9, we need 100, one hundred, one hundred.

Speaker 1

And we're feeling a little tight actually even on the GE program, so that's one of the drivers of this decision to do this major expansion as well. We're thinking and planning for the long term, we're thinking and planning for our future. When you think about capacity you gotta think five years out. It takes three years to build a plant and you gotta do trials, get qualifications. Five years at least, five years, probably better to use ten years.

Speaker 1

So, we think that far out, we think yeah, we need to do something here, it's very important. It's a great opportunity but we don't wanna miss it. Go on to slide 31, interesting stuff. Others may do things differently, they may wait until the opportunities mature enough and risk missing out on them as a result. But as you know, at Park we're not like the others.

Speaker 1

So, yeah, we're in control of our destiny. We have our own cash to do this with. We can do things for our future. I was talking to a business guy in our industry, Mark knows him well. And he was really upset because he was saying that his company is not investing in the future and they've lost a lot of major opportunities because when these opportunities arose it was too late, they not made the investment, they lost them.

Speaker 1

So, we're not that kind of company. We are in control of our destiny. We have our own cash and we're taking advantage of it. And nobody can stop us from doing the right thing for our company and our future. Not sharing our long term business forecast.

Speaker 1

We're not going to give you the sales number at this time. We'll get back to that. We have a lot of internal work done on this so it's not we don't have, we're just not sharing it. A lot of different scenarios. But suffice it to say for now we're putting our money where our mouth is by making this major investment in our future.

Speaker 1

What about the ROI? Very significant, very significant. We're using our own cash ROI, significant. Cash flow, significant, very significant. You know, I think back and I'm sorry that the call's going on a little bit long here, but actually you have a lot to cover.

Speaker 1

Over the last five, six, seven years we've received from bankers, you know, M and A opportunities and it was aerospace. Was so superficial, oh aerospace that means it's right for Park, of course not. Just means it's aerospace doesn't mean it's right for Park. But we saw businesses where they were sold for 120, 1 hundred and 30, 1 hundred and million dollars of sales for $20,000,000. So it's really good we didn't go there because now we can, we're talking about some real ROIs here.

Speaker 1

I don't know what the ROIs would have been for something, investments like that. These are some real ROIs, very significant. This major new investment change you're thinking about is cash, maybe. Maybe we'll get to that in a couple slides, buybacks, JVs. We already said those JVs, we told the JV partners, well, we're not contributing cash, we'll contribute our IP but not our cash.

Speaker 1

What about the high level conceptual financial outlook included in our recent quarterly investor presentation? What happens to that? We'll take a look at that. So let's go on to slide 32. So you see when you look at this slide, this is the reason we felt we need to talk to you about this now.

Speaker 1

These are two slides in our prior presentation. This is one of them. You see where it says major new expansion project 35,000,000 in the prior presentations. That was 7,500,000.0 for a treater. So we felt well that certainly we couldn't present that slide to you again, that would be so wrong.

Speaker 1

So, another option was to delete the slide, but we thought if we did that that would alarm investors and cause angst that we don't wanna do that either. So, here's this new slide and this is one of the reasons we felt because of things we covered in our prior presentations, we really needed to tell you about this now, this major event now. Look at our cash, had 68.8 at the end of the quarter. So, the 5.1 you know about that, that's a payment to make the IRS in June. Buyback in the first quarter '2 point '2 million, advanced payments to Aireon five million, about 1,500,000.0 are right in the first quarter and then we have 35,000,000 for this major expansion give or take 5,000,000.

Speaker 1

That's a lot, it's 47,000,000 and we got 68,000,000. Just doing some simple high level math here that says after we spend all this money we have $21,500,000 left. So, that's good, we have no debt, but it's not like we have $200,000,000 left And the other thing I wanna mention is that cash flow. So we will be building back that number, especially after this expansion is done and we start to utilize it properly, the cash flow will be quite significant as will the ROI. So we'll start to build back the number.

Speaker 1

Let's go on to slide 33. All right, so this is something that we cover every quarter. We're not gonna go into great details. We call this financial outlook for G. A.

Speaker 1

Or space gen engine programs, the juggernaut. What's the timing for the juggernaut? We don't know, not sure. But it can't be stopped. We better be ready.

Speaker 1

We know it's coming. Let's go on to slide 34. This slide is almost the same as the prior slides relating to the numbers for the Juggernaut. We just added something for consistency. Miscellaneous GE programs, 02/1950.

Speaker 1

So what we did was we wanted to make this slide consistent with the prior slide which had the GE sales history because GE sales history includes all GE program sales. This juggernaut slide did not include some of the GE aerospace LTA sales. So we're now including in this last item miscellaneous GE programs. These are under the GE aerospace LTA, not the MRAS LTA. It's a little confusing but we just wanted to make it apples to apples so the numbers kind of reconcile with the historical sales.

Speaker 1

We can go on to the next slide and just look at footnote nine because footnote nine describes this new item, multiple part composite materials products supplied into GE90, GenX and GE9X engine programs under the parts LTA with GE Aerospace. Again, not MRAS, Aerospace. Let's go on to the next slide here. And this one, slide 36, this is something we presented in the last few quarters. This is again the reason why we felt we needed to talk to you about this major expansion.

Speaker 1

We have big question marks here now. Have non GE programs incremental sales, question marks. If you look at the footnote, that number was $15,000,000 in the prior quarterly investor presentations. That number is blown out the window, blown out the window. We're not gonna talk about the number is, but that number is gone.

Speaker 1

So, we couldn't provide the same slide to you. It would be wrong to provide a slide which talks about $15,000,000 incremental sales. I'm not giving you the number now, I want you to know that something is very different here and obviously the total would be very different as well. It's simple math, you know, let's round GE programs up to 60,000,000. The non GE programs has been maybe around 30,000,000, give or take that's 90,000,000.

Speaker 1

Then the 15,000,000 incremental is 105,000,000. Well, that number doesn't work anymore. We're not giving you a new number, but we're telling you that it doesn't work anymore. And that ties into why we're communicating to you about this major expansion initiative. And actually that's the end of the presentation.

Speaker 1

We're not going go through the appendix. So thank you everybody for listening. Operator, Mark and I would be happy to take questions now if there are any.

Operator

Thank you. We will now be conducting a question and answer session. One moment please while we poll for questions. Seems like there are no questions at this time. I'd just like to remind everyone, if you'd like to ask a question, please press star and then 1.

Operator

1 moment please while we poll for questions. First question comes from Nick Ripostela from NR Management. Please proceed with your questions, Nick.

Speaker 1

Nick,

Operator

you may proceed with your questions. Your line may be muted. If you could please just unmute your line so that we can hear your questions.

Speaker 3

Hi. Good afternoon. Can you hear me?

Speaker 1

We can hear you.

Speaker 3

Oh, great. Congratulations on a decent quarter, and it's pretty exciting what you're suggesting there with this new expansion. So I just have a couple of general questions with regard to tariffs. I know it's hard, but in the big picture, just your best guess at how it might play out, you know, in terms of the, you know, airlines and Airbus, for example. So if you can comment on how you think it I know it's hard to answer, but there's just so much different opinions on how, you know Sure.

Speaker 3

It might work out. And there's a lot of, you know, tough talk going around, but, you know, you're you're best guess. Secondly

Speaker 2

But Or

Speaker 1

go ahead. Sorry. Did you repeat your question?

Speaker 3

That's the first question. The second question is if you could just there's been a lot of talk and a lot of sell side research on supply chain still and engine components. Do you think that those issues have mostly resolved themselves at this point? I mean, GE has been pretty positive and but so just your further thoughts on that. And, you know, and then do you think you know, what what would be your biggest worry in terms of, you know, delaying the juggernaut at this point?

Speaker 3

I know that's also a difficult question, but as, you know, Airbus, you know, when they reported recently, I think we had an email back for it. They're not backing down. So there is optimism there. So anyway, those are my questions. Thank you so much.

Speaker 1

Thanks, Nick. Okay. I'll try to we'll try to get them in reverse order. I think the last question is what is the biggest obstacle to Juggernaut occurring? So don't know, I I think it's more really a question of when and if that's my opinion.

Speaker 1

I don't see the juggernaut not happening, I don't see the scenario under which it doesn't happen. But you could argue and obviously people do about when it'll happen. Airbus says if we're talking about day three twenty they have their input, other people skeptical. And you know what, personally I'll say, I kinda got tired of listening to it because there's just so much noise and noise and noise like who cares? And we just have, for our perspective, we just have to be ready because we believe it'll happen.

Speaker 1

And every expert has an opinion. I get these email services with all these aviation experts and I don't know who pays them because I mean I don't know what their opinion is worth but my opinion much. On the supply chain stuff, yeah, you probably heard that Airbus is building gliders again, think it's 17 gliders, I'm not sure, I think that's a number that they produce this year. Gliders mean that they're producing airplanes and no engines, thanks to whom, who rather that did all the engines for the A320. Now, what I'm told is there's a little bit of bright news is that in the first half more engines have been going to just supporting existing airplanes with spares and that kind of thing.

Speaker 1

And that's not supposed to happen in this, that's supposed to go away in the second half. So that way the engines that are being produced will be going to new airplanes, not the spares. That's what I'm told anyway. But it's not really wonderful news to hear that Airbus has built 17 gliders, eight through 20 gliders, they just can't get the engines. So, the supply chains with the engine companies are still obviously an issue and I just hope they figure out a way to get their act together.

Speaker 1

And not just for Airbus but for obviously for Comac and Boeing as well. So I don't know if that's a good answer but that's the best answer I can provide. We'll have to see. I think they'll have to get their act together at some point but I don't know when. Maybe that's a similar answer to the answer to the first question.

Speaker 1

Supply chain, you're asking now not our specific supply chain issues sorry, tariff issues, talking about how tariffs, I think that's the question will affect the industry generally. And again, like you kind of intimated and replied, everybody has an opinion, you turn the on, talking about how tariffs will affect the world over the next whatever years and I don't, or maybe months, weeks, I don't have a, I mean I have nothing that I could add to all that because there's so much, so many opinions out there. As you know, the GE Aviation programs that we're on except for the 777X relate to airplanes that are made by foreign companies, Canadian, European and Chinese. So there are some tariff questions that could and should be asked about how the tariffs will affect the sales of airplanes. But and the supply of the equipment into those airplanes.

Speaker 1

But I don't know. I guess whatever the 2¢ opinion is, would say that I feel like these things will be sorted out at some point because the global economic need is such that it will be necessary to sort these problems out one way or another. But I could be wrong, just my opinion. Mark, do want to add anything about tariffs?

Speaker 2

No, mean everybody we talk to, I know he's asking the airlines and the aircraft companies, but I think we're all looking for answers. I think, you know, there's really, you know, no, yeah, I don't think anybody wants to stick their neck down and say this is what's gonna happen. So I think we're all just kind of sitting back and just waiting for this all kinda vet itself out. And hopefully, it's sooner rather than later. That's all I really got on that.

Speaker 1

Okay. So you see, Nick, our combined input is not so much more brilliant this year's program these days.

Speaker 3

Oh, okay. Can you still hear me?

Speaker 1

Yes.

Speaker 3

Yeah. One other thing. So, I mean, you used the word tight with regard to a little tight with regard to your current manufacturing footprint. And so is it safe for me to to think that you have a high level of confidence of of what you're doing in terms of a major expansion even before the the juggernaut has really come to play, you know. We're not at, you know, might be a year, might be a year and a half, might be two years before they get to seventy five months, but it's certainly not inhibiting Park in any way.

Speaker 3

You you're gonna go forward with your investments because you see the opportunity right now. Is that safe to say?

Speaker 1

Yeah. And so, exactly right. We're okay now. We're not we're having trouble keeping up now, but we have to plan for the future. When you're talking about factory capacity, especially in aerospace for our kind of business, you gotta think five years.

Speaker 1

So you gotta think, well, how much capacity, manufacturing capacity will we need in 02/1931? No, 2026, '20 '7, '20 '8 doesn't matter because we need to be ready for 02/1931. And if we don't get ready for 02/1931 now, we will be in trouble and we'll miss out on things and we could end up being too tight and disappointing customers, and that's just not our way of doing business. You know?

Speaker 3

Right. Right. But all all while you're thinking forward, as a shareholder, it's reasonable to assume you'll have higher sales, you know, in the next couple of years in in any case, you know, absent some kind of, you know, I don't know, calamity we can't think of. You know? The company will be growing while planning for four or five years.

Speaker 3

Is that reasonable to assume?

Speaker 1

Well, the quest I think the answer is yes.

Speaker 3

Okay.

Speaker 1

But the question is this. You take, you know, the capacity we think we need in 02/1931. Okay, so we're building towards that number. Is there a straight line between where we are now to that point or is it kind of a squiggly line, you know? We don't know.

Speaker 1

You know, next, when we look at it, it doesn't really matter because we have to think five years out capacity wise and if we feel we don't have enough and we feel we definitely do not have enough, we need to deal with it so that we get to that point we'll be where we wanna be. Not only to be able to handle the programs we know about, but what about new programs, new opportunities that come our way? Like I said, our friend is so upset with this company because they invest for the future. So, when programs came around, lost We don't wanna be in that position. We wanna be in a position where the new opportunities, whatever they may be, we can take advantage of them if we want to, if we feel the right part.

Speaker 3

Alright. Well, my suggestion is those folks in Washington that care about American manufacturing, they ought to be talking to the guys at Park, you know, because you're thinking of the future with American jobs, and, yeah, it's a beautiful thing.

Speaker 1

Well, thank you very much for saying that. You know, I doubt anybody from they'll be calling me anytime soon, but but, nevertheless, they

Speaker 3

You know? But you're exactly what they're you're exactly what they're trying to make a point of. You know?

Speaker 1

That's true. Well, I agree.

Speaker 3

Okay. Well, thank you so much for answering the questions, and and have a good evening.

Speaker 1

Thank you very much, Nick. We appreciate your questions. Really helpful.

Speaker 3

All right.

Operator

Thank you. At this time, there are no further questions in the queue. I would like to hand the call over to Mr. Shaw for closing remarks. Thank you, sir.

Speaker 1

Thank you very much, operator. Thank you, everybody, for listening. Thank you for hanging in there to the extent you're still on or actually a little over an hour. Have a good day. If you have any follow-up questions, feel free to give us a call.

Speaker 1

Thank you. Goodbye.

Operator

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for joining us. You may now disconnect your lines.

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Earnings Conference Call
Park Aerospace Q4 2025
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