Good morning. My name is Liz, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corp Fourth Quarter Fiscal Year 2019 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. At this time, I will turn today’s call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference..

Thank you, Liz. This is Brian. I have with me Matt Farabaugh, our CFO. Just want to let you know that we’re not in the same location. We’re remote. So we’ll try to coordinate the best of our ability, but I guess we are in the same location in May but we’ll then be a little bit less or completely smooth with our coordination, but we’ll do our best.

So, let’s start by reminding you or telling you that there’s a presentation on our website. There’s also webcast, I think some of you in the webcast already see the presentation.

But if you haven’t seen the presentation, you just dialed in, you want to go on our website and take a look at that because we’re going to be going through that presentation today. So, why are we doing that? Because we haven’t, the only – I think we’ve done that only one other time, one prior time for our investor calls.

But Park is somewhat of a new company, somewhat old, somewhat new, but our fourth quarter was our first quarter as a pure aerospace company. And we’re not very well known either. We’re also in between analysts, which we’ll cover a little later on in the presentation.

So we wanted to do just try to help our investors to understand the company as at the best of our ability. So it’s – the presentation will not just focus on the Q4 and the year numbers, we’re also going to try to explain a little bit about who we are and what we do, some of you already have know this, so bear with us, but maybe some of you don’t.

And like I said, we’re not that well known and we’re just kind of emerging as an aerospace company. So we thought we should go through some backward information as well. The presentation may end – seem a little like a hodgepodge because it’s a little bit of the numbers, a little bit of the background about Park, but bear with us.

Also I want to mention that we did a presentation of Needham Conference on January 16, 2019. And that presentation is on our website still. And a number of the slides from this presentation, today’s presentation are taken from that Needham presentation. So, I just want you to be aware that.

Some of these slides we’ll skip over because they’re just for backgrounds, more about us. We’re trying to give you like one stop shopping.

So one document helps you to understand a little bit about the quarter, but also a little bit about what we do, who we are, but I also would encourage you to look at that Needham presentation if you have time that’s still on our website just to give you a even more background on who we are, what we do stuff.

Obviously, you don’t have any commentary in the fourth quarter because it was done before the fourth quarter ended. So I am not sure we’re going to do a presentation like this every quarter, but let’s see. But then also please let us know what you think, all right.

I also want to warn you that it could take about a half an hour to go through the presentation. I’m not sure exactly how long, but it’s going to take a little while. It’s a presentation has about 18, 19 pages.

And there was also an appendix to the presentation and the appendix just provides some supplemental financial information about the quarter and the year. Okay. So why don’t we get started, let’s move to Slide 2. Slide 2 is our cautionary language.

If you have any questions about this, anything, any language, any statements on Slide 2, you might want to give us a call later and we can walk through that with you. Let’s go to Slide 3. Slide 3, Park’s transformation from electronics company to an aerospace company. This is really important for context.

If you’ve been listening recently at our Needham presentation or even our third quarter conference call, you know some of this information, but I think for this call to give it context support and we cover this for you. We’re not going to go into lots and lots of detail, but we just want you to have that context perspective.

The company is founded in 1954 and went public in 1960 and we went through the electronics business in 1961. So by the mid 1980s, Park has become basically an electronics company, printed circuit material company, a global electronic or certain material company.

That’s our business and that’s what our identity was and through the 1980s, 1990s and 2000s, we just became more and more of a pure electronics company. Then in January 2007, we did something which probably most people thought was pretty unusual. We committed to aerospace as a second major area of business focus for our company.

And why would the heck would we do that is because we had become concerned about our future electronics and we wanted Park the other future. It was a very hard decision to make, but I think with the benefit of hindsight, it was the right decision to make.

So in January of 2008, a year later, we had our groundbreaking, you’ve seen in the top right there for a new aerospace manufacturing development facility in an empty field in Newton, Kansas, so some may call it a field of dreams of – it’s also made me feel to nothing because that’s really what we started with.

You see it’s such an empty field and we started our space business just from nothing. So it was a very difficult decision to make and it was a lot more difficult to execute. And in May 2009, so that’s about 10 years ago now, right. That’s when we opened our new Kansas Aerospace Facility kind of because it was not really that smooth.

We – some of our equipment, didn’t operate properly. It took two years to get some of the equipment to operate at the level we could actually make production product. But that was a 10 years ago as this has been a 10 year journey. Then fast forward to December 4, 2018, just about six months ago, we sold our electronics business to AGC of Tokyo, Japan.

And that was the completion of the transformation of Park from electronics company to aerospace company.

So as of December, about six months ago, Park is a pure aerospace company, no longer like electronics company, so that was the transition at least kind of the reader’s digest version of the transition from electronics company to an aerospace company. So let’s go to Slide 4 please.

So, Slide 4 and 5, were contained in the Needham presentation and I’m not going to go into details because we’re just trying to move as quickly as you can, so we don’t believe that the presentation too much, but just summary on Slide 4.

So our basic business is advanced composite materials used to produce composite structures for the aerospace markets. And then if we just want to – and you see at the bottom of Slide 4 the different markets that we play into. But these are all aerospace markets, we’re an aerospace company.

If you go to Slide 5 and we see also we produce as a compliment or advanced composite materials offering we also produce composite parts structures, assemblies, low-volume tooling, again for the aerospace industry. That picture is a picture of our Newton, Kansas facility.

The larger building is our main facility and a little building to the right with the same kind of color is also our facility. And that’s where we have a warehouse and also R&D is located in that smaller facility. The other buildings in the picture are not ours. You can see a couple of things here. It’s in an airport that was on an accident.

As an aerospace company, we want to be in airport because we wanted to be very kind of immersed in the whole aerospace culture. So we wanted to be in airport. The only thing I would point is the parking lot is quite empty and this picture was probably taken six, seven, eight years ago, I don’t know. If you went there today – there is no parking.

It’s actually a problem. We don’t have any parking available at all, because the plant is quite full, okay. So we’re not going to go into any more details. Let’s go to Slide 6. This is something I like Matt to help us with reconcile on EPS and EPS before special items for Q4.

So like I said, little hodgepodge and we’re talking big picture now we’re going to talk a little bit about Q4 here.

So Matt, can you help us walk through the reconciliation please?.

stock option modification, loss in sale, marketable securities and Tax and Jobs Act. The first two stock option and loss is sales of security, they were laid to the special dividend that we had done in the fourth quarter.

And you can see that we backed them out of the GAAP EPS of $0.08 and they have an impact of – they reduced or our EPS in the quarter by $0.05 and $0.02 each. So if we back them out it’s $0.07 better than, than the GAAP number to get to what would be a normal – ongoing operation.

And then the tax and jobs cut, Tax Cut and Jobs Act that really was adjustment for clarifying some guidance for the new tax act that was enacted in December of 2017. And that had the impact of a lowering our EPS by $0.04.

So if we can back that out, those three special items really take our EPS, GAAP EPS from $0.08 up to what would be a sort of a normal EPS going forward of $0.19..

Okay, thanks Matt. I thought it’d be useful to walk the investors through that. While boy – you’re on, could you also give us some help on understanding what to expect for our tax rate going forward? Let’s say in fiscal 2020..

Yes, going forward we would expect tax rate probably in the mid-20% range. So we saw our tax rate this quarter was a little bit lower than that just because of some various adjustments and things that were going on for the quarter, in part related to the Tax Act, in part related to the sale of the Electronics Business.

But going forward, I think, we probably would expect something in the mid-20..

Okay, that’s good.

And then what about investment income? What do you think we’re going to see in investment income going forward, let’s say into the next year by quarter?.

Going forward, well assuming that our cash remains fairly constant and the interest rate environment remains fairly constant. I would say that our investment income and in the quarter is going through this year should be something in the area of say $900,000 in the quarter..

Okay, excellent. We wanted to give you that perspective because the tax rate going forward and the interest income going forward, maybe a little different than what you saw in Q4. So we just wanted to have that understanding. Okay, good. Let’s go on to Slide 7. So we’re talking more about our quarter, quarterly results in thousands.

There’s a lot going on here. First of all, we talked about this at some length in the third quarter call. But if you – well I guess we need to reference largest part of our business goes to GE Aviation programs and that’s somewhat of a driver of our numbers.

Last year, they were a little over 40% of our revenue and I think we have a slide on that little later on. But in the first two quarters there were some destocking going on, this is not our inventory, it’s the customer’s inventory or some of their suppliers, when I say destocking. And then in their last quarter, fourth quarter, restocking.

So there’s kind of a little bit of a whipsaw impact there. Now we’re warned everybody about that in our third quarter, we said that the fourth quarter was going to be quite strong. And there are two reasons. One is the fundamentals, in other words, the underlying programs are ramping, but also some of the inventory ups and downs.

And that’s something we’ll be living with for awhile. Maybe we’ll touch on that a little bit more later on in the presentation. But one of the reasons is that most of the programs are on are the ramping or even in development. They’re not mature programs where everything is in kind of steady state.

So to manage the inventory on the part of our customers is a little more challenging. So there are those ups and downs. Anyway, so let’s talk about what happened here.

What we said about Q4 during our January Q3 Investor Call, we said that we’re going to estimate sales at $16 million to $17 million and we’ve estimated EBITDA at approximately $4 million if you want to go back, listen to the call, you’ll hear those numbers.

So what was going on here, Q4 like I already said, was our first quarter as an aerospace company. The quarter was already booked. But there was a major question as to whether we could actually produce and ship that kind of number between $16 million and $17 million. But we decided to go for it, even though it seemed very difficult, very challenging.

And some people may have even said, seemingly not even possible to achieve those numbers. If you look at the prior quarter, we’re talking about one quarter difference and that third quarter was up, right. So it was a significant challenge to produce that product and get out the door.

That product is all produced the production value in Q4 was about the same as sales values. It’s not like we had a lot of stuff in stock at the end of Q3. So anyway, so how are we, let’s go back to the presentation.

How are we able to meet the sales and EBITDA objectives of Q4? Well, there are 70-hour work weeks from our production people, they did an outstanding job. They stepped up, these people are hardcore and to me, it’s an honor to work with them. I’m very pleased, very pleased. This is very hard work.

70 hours a week, week in and week out running treaters, so most of you probably haven’t – aren’t familiar with that. But treaters have teams of four, they have to work really closer together these teams and once they start, they’re going to run. There’s no stopping them. So they have to keep up and a 70 hour work weeks, week in and week out.

That’s how it was done. That’s how we met the objectives that we have set out for our first quarter as an aerospace company. So I feel very happy about our people. Like I said, it’s an honor to work with them. We’re bringing a third shift on now, but we waited a little while.

First of all, it takes months to train people, running treaters is a very – a lot of skill involved, it’s a very complicated equipment to run. And so training is really important before we don’t just hire somebody and go through a two-day training program and put them on the floor. It doesn’t work that way.

Also reluctant to bring on new shifts and hire new people, we’re confident that we’ll be able to sustain that level of workforce. We never laid off anybody in those 10 years from our aerospace business and we can’t – we’re not gods. We can’t guarantee, we never will.

We are very committed not to laying people off because we want our people to believe they have a future with our company. And we could say whatever we want. You say, you have a future with our company but then you lay them all, it’s not going to really go too well. We want people to believe they have a future with our company.

So we’re very careful about hiring people until we’re pretty confident that we can keep them. We also have cross training programs you call a customer flexibility, which allows us to move people around. When a department is a little slow, we move them to another department. Okay, so that’s a Slide 7, how about Slide 8.

Okay, now we’re looking at the year-over-year results. So you’re looking at top line, you can see the growth, growth was driven in part by the GE Aviation program, which are ramping and they’re not ramping done. We’ll talk about that. So the EBITDA numbers are what they are. The gross margin was 31.7%. I should back up.

Sorry, I think I forgot to mention that in the prior slide, it was kind of an important point. Slide 7, the gross margin in Q4 is 35.4%. You can see the gross margin move up as the top line moves up.

So what do we tell you all? What do we tell our investors about fiscal 2019? We gave some kind of forecast, a forecast for fiscal 2019, back in January 4, 2018, before we started fiscal 2019. And what we said was we had sales estimate of $50 million to $54 million. So we came in within – came in, in that range.

And it was, like I said, kind of a hockey stick year because the first two quarters were destocking and the last quarter was restocking. Pro forma EBITDA, this is important to understand this distinction. We estimated $10.5 million to $13 million, you might say, we didn’t make that range, but it’s not true.

This is actual EBITDA and we had given you estimates for pro forma EBITDA. The pro forma assumptions as we stated at that time, which was an excellent presentation we gave at that time, assume all legacy costs are limited here at the beginning of fiscal 2019. Of course, it didn’t happen.

And Matt and I figured its probably an impact of $1 million to $1.25 million. So that means that in order to get apples to apples, turning actual EBITDA $10 million to $10.25 million basically right into equivalent, a pro forma that would be $11.25 million to $11.5 million if you follow the math.

So in terms of our forecast, we actually came in within the range as well. Okay, will we move on to Slide 9, try to hustle through Slide 9. Okay. So now we have a forecast for Q1 and Q2 of this year, fiscal 2020. This is something new for us, we haven’t done a lot of forecasting like this in the past.

We did a forecast for a four year period, but not quarters. This is the first shot at it. So what is our philosophy about forecasting? We just tell you the truth as we know it. That’s what we’re going to do. I don’t know what others do, but that’s what we do.

In other words, we’re not going to give you a low range until we could beat it, that to us sounds ridiculous and insulting and immature and childish and a real stupid waste of time. So you’re probably asking me, why don’t you tell us what you really think about it, but seriously, that’s not it. So we give you a forecast.

What we’re saying to you is this is what we think will happen. Now we could be wrong, but we’re not going to play the game of giving you a low number we can beat, we’re telling you this is what we think will happen. I spent hours with Mark Esquivel, our COO working on these forecast ranges. So there’s a lot of thought that goes behind them.

Maybe we’d be right, maybe we’d be wrong. But it’s our best guess as to what will happen. That’s what we do when we forecast. So again, I want to remind you there’s this quarter-to-quarter volatility, sorry, driven by these GE programs. All but one program, that’s the 747; 747 is a matured program or development or ramping at some fast.

So inventory management is more challenging for our large customers. You could say, why we giving you a kind of a range for Q1. Q1 will be over in two weeks. Well, there’s still a lot to ship at the end of Q1. That’s not unusual. Sometimes at the end of the month, end of a quarter, it’s a lot to ship. So we still want to provide you a range.

The Q1 will – ends I think two weeks from Sunday. And Q2, again, our best guess, some of it is booked, some we have to book and ship. But we’re trying to give you our best guess, we’re not just giving you a low number or a safe number, this is what’s booked, right.

We’re trying to tell you, this is what we think will happen, assuming, we do our job and work our – whatsoever. Okay. So let’s go to Slide 10. Slide 10, other than the red portion of it, this was what was in the Needham presentation I referred to that was given on January 16.

This is just taken from the Needham presentation as is kept the red stuff I was explaining there that we’re including this in the current presentation. That Needham presentation, again, it’s on Park’s websites. You can look it up. So – and this is – so we’re including this presentation.

Sorry, we’re including this forecast that was from the Needham presentation for convenient reference only. And we’re not updating or confirming this forecast at this time. We’re not going to confirm the long-term forecast every quarter. I think we’d drive everybody crazy.

Our current intention, which is subject to change, is to update our long-term forecast annually toward the beginning of each challenge a year and then we’ll just roll in one more year, which is what we did this last year. So again, you can see the top line growth. This growth is based upon the forecast.

We covered this in our last call, but it’s based upon the detailed forecast we have from our large OEMs, GE Aviation programs and also going through line item by line item and predicting what will happen. I wouldn’t say it’s an aggressive forecast that does not assume any acquisitions or any unusual new programs. So, okay, I think that covers it.

Again, just for reference, perspective because we showed you the prior quarters and the prior years. Just remember, we take that $16.7 million number that we had for Q4 and we explained this I think in the last quarter call just doing the math now, sorry, it’s my calculator, that $67 million.

While you look at our forecast for fiscal 2020, $59 million or $64 million, but we explained that you shouldn’t do that that Q4 of 2019 is going to be a high quarter for restocking and going forward into fiscal 2020, the numbers will come down a little bit and that you see in the quarterly forecasts we just went over for Q1 and Q2.

Okay, let’s go on to Slide 11. And I thought, maybe Matt, if you’re still there, maybe you could help us cover the first part of Slide 11, and then maybe I’ll give you some input on the acquisition strategy and the JV strategy..

Sure. I’ll quickly go through the cash math here. So, year-end we had about $152 million of cash and marketable securities, but some of that is going to be used up. There’s things that we have going on where we know we have to use some of that cash. One of those is transition tax. So it’s again, the new tax act that was enacted back in December of 2017.

We have – the government gave everybody eight years to pay off the taxes related to that enactment. So we have about $19 million more of taxes to pay related to that new tax act and it goes out for another seven years. At this point we paid one of those eight years.

Additionally, we have announced the expansion of our Newton, Kansas facility and we paid a little bit. I think the estimate was about $20 million of cost. We paid – put down some deposits upfront. At this point we have about $18 more million based on our estimates of additional cash that will have to layout as we do that expansion.

So that – if you back those out of $152 million, we have about $115 million for cash remaining for use on whatever seems to be appropriate going forward. We paid – since fiscal year 2005, $507 million of dividends, that’s $24.75 a share over that period of time.

And Park has paid regular quarterly dividends and without ever skipping or decreasing them for the past 34 years. So 34 years of ongoing regular dividends. At this point, you’ll note that by looking at our balance sheet that Park’s debt is zero, so we have no debt, no long-term debt at all at this point. It gives us a lot of flexibility as well..

Thank you, Matt. So a good summary. So going to acquisition philosophy, as Matt said, we have about, if we take care of these items we’ll have about $115 million of cash left. Even though we paid $507 million of cash dividend since 2005, we have no long-term debt. We still have some cash available.

But we have a pretty active acquisition program if you will, but our strategy is a little bit different, I think we call them hit them where they. We participate in these auctions and we think they’re just not usually for us.

Why? Because, first of all, the prices – value seen get bit up and we’re not going to overpay for something and it just for looking long-term, we’re not looking to make a splash for two years and then somebody else’s problem when somebody retires and something like that.

We have to buy – our objective is to buy something that will meaningfully contribute to Park’s value over the long period. It needs to be something unique, something different, maybe something a nichey.

One of the things we’ve done is we’ve worked quite a bit with a couple of OEM customers that have been very helpful to us, in terms of pointing us in the right direction. These are aerospace companies. In other words, let’s say you like us, maybe love us, but they have other things they buy for their programs, which maybe not so happy about.

Other products they buy, maybe not so happy with the supply chain in that area. So they pointed us in those directions, we even had some overlap, where OEMs I’ll pointed, certain areas within own and you’re [indiscernible] some things going on there.

Not only are they giving us the products, they’ve also given those names and in some cases made introductions for us. So we’ve made contacts. Now these companies are not being watching or not for sale. So often the responses, what we’re not for sale, but that’s the process. It’s a longer process.

It’ll take a little while, longer to get through it, but we’ll end up with something better. And how does your you plant a seed.

You contact somebody and you did some talking, no, they don’t even know you, but you plant a seed, maybe you have some follow-up discussions and maybe at some point it turns into, well maybe we’d be interested in doing sampling with you. So it’s been very helpful. It’s – I mean, working with the OEMs is very good. We’re looking for things in aerospace.

But again, some things which are unique and different and nichey. It starts – the things that are auctioned and I don’t know why their prices high, but it’s kind of very standard stuff. Why is that? Because the people that bid on these things aren’t going to understand unique or nichey technologies.

They’re going to shy away from it, because as I will get this stuff right. So I’m not going to spend money on something old yet. So we end up competing with people that don’t really have deep understanding sometimes and aren’t after niche or net prices go up, not for us.

So we’ll see, but our M&A program or activities, it’s I think going the right direction and it’s a fairly active thing. We mentioned this during our last call. I think we’re also seeking a JV partner in Asia. This should be a large aerospace company in Asia or to help us establish more of a presence in Asia.

Asia, we think it’d be very difficult for us to do that on our own, just own at a resources, but we’ve had some very interesting and promising early engagements with some, really, I would say solid aerospace companies in Asia. So it’s at the beginning stages, but we feel encouraged about we starting to. Okay, Slide 12. Let’s keep going here.

All right, here we go. Major jet engine company programs, of course, this is GE Aviation we’ve been talking about. This maybe I should have put these slides at the beginning, right, talking about this throughout the presentation. These Slides 12 and 13 were including new presentations.

So we won’t go through them in detail and think we want to take the time and do that. But we do have a 13 year LTA – with Middle River Aerostructure Systems now we’ll explain that. That’s the major GE Aviation division that we supply into this division produces miss cells and thrust reversers structures for jet engines.

As we’ll get to in a couple of slides. That division was just sold to a company called ST Engineering Aerospace. But the redundant factories in progress, that was something it was a promise to GE Aviation at Middle River. Once we signed a 13-year LTA with a firm pricing. And the programs, so we talked about the 747, you see a picture of the 747 there.

Those are in the sell. They’re very large. So those structures are composite structures, meaning a lot of composite of content, which means good for us because there’s a lot of our content in these programs. So 747, that’s obviously some sure program.

A320NEO with LEAP-1A engine that’s ramping, ramping pretty hard and that is predicted to be a very huge program by Airbus and others. LEAP-1C that’s the Comac 919, that’s a Chinese airplane that’s in development. So we’re just doing development work at this point.

And vendors of Bombardier Global 7500 with Passport 20 engine, the Passport 20 engine is new GE engine. That’s also ramping. That’s a nice program for us. But we keep going down. There’s something else for the Passport 20.

This is a GE Aviation program rather than MRAS program, because at the bottom of the page we’re talking about Nacelles and Thrust Reversers for the primary structure that’s inside the engine, a part of the engine. To the top right, that’s something else which is new and exciting.

There’s a critical structure that we’re working on with composite materials for the Genx, GE9X rather engine for the Boeing 777X and we’re just in qualification on that program, going through a qualification in that program. Let’s keep going.

So on Slide 13, we’ve done a number of joint development projects with MRAS and it has been very, very great for Park. We did AFP manufacturing. We don’t have time to explain to what it is, but it’s very important manufacturing technology. That was something we worked on, the development work with them.

Our product is also now qualified and in full production for AFP manufacturing. Lightning strike material, another joint development project, again, a project the development is complete, a private product is qualified and in full production. Film adhesive, another joint development project, development complete, undergoing qualification.

So these are things I think would be very difficult for product lines, areas of Park – very difficult for Park get into without partnering with MRAS and they’ve been just – I don’t know what to say, just wonderful.

So the last two items on Slide 13 actually a little new information for you, so when – this is new, we haven’t disclosed this before, but revenues from these major jet engine company programs, the GE Aviation programs were $21.7 million in fiscal 2019, so little over 40% of our revenue.

And then if we look at ramping these programs, the GE Aviation programs based upon the forecast that have been provided to us, since we’ve not already into it. These programs will exceed $50 million per year by calendar 2025. Let’s keep going Slide 14 and 15, Slides 14 to 15.

Again, this was contained in Needham presentation, but it’s a pretty important. So we’ll just kind of touch on this. The major expansion of our Newton, Kansas facility, Matt already mentioned in terms of our cash situation. Let’s start by looking at the picture there. The bottom right, that’s existing building and the top left, that’s the new building.

And also if you looked in between, there’s a passageway between the two buildings. This is an artist’s rendition factory. This is not a photograph. It’s an artist’s rendition. If you look it, there’s a passageway between the two buildings and that passageway will accommodate not only people, but also materials like forklifts going back and forth.

So this was originally conceived as a redundant factory for MRAS and GE Aviation. Why is that? Because it protects about three years to qualify a composite materials for these key programs, which is obviously a long time.

And so their concern is redundancy is a big thing in aerospace, because if something happens to one of our factories and what are they going to do? It takes three years to qualify another supplier and it was going to happen all these programs, we’re sole-source qualified in these programs. You see the point.

So we had agreed that once we signed that the long term LTA with the pricing that we’d go ahead and build a redundant factory. It turns out, if you look at second sub bullet item, we need it for manufacturing capacity anyway at this point. So we need to get going.

But 90,000 square feet, about $20 million, that’s an update, when we announced it, it sort of $19 million. So it’s really in the wrong direction about $20 million. We planned to break ground in June, but I should tell you that biggest word airport, it requires FAA approval. And that’s a little bit of kind of unknown.

So I’m not sure about June, that’s our plan, but at this point, it’s come in the hands of the FAA, big government agency. So sometimes it takes a little while to get things through them. If it’s not June, our hope would be it would be July. Okay.

Completion expected mid next year and let’s not go into the different equipment that we’re including in the expansion, but not surprisingly, this equipment as geared toward the GE Aviation type product line, since it was originally designed as a redundant factory for GE Aviation.

Going to Slide 15, a little bit about – sorry a little bit about our manufacturing capacity, I apologize, I’m rushing. So I keep talking over my own words.

The original as hard existing hot-melt manufacturing capacity about $40 million hot-melt product, hot-melt prepreg product, composite materials, that’s the lion’s share of what we produce for GE Aviation. It’s for new structural – aerospace structural programs, new programs. It’s generally going to sway toward hot-melt compared to solution.

For reasons, we can discuss later if you’d like. The expansion will provide another $50 million of additional hot-melt capacities, that will give us about $90 million, but we also set it up in the new facility that there’ll be ruled for additional equipment.

So if we want to make the additional investment in the equipment about $4 million or $5 million, that will give us another $50 million of additional capacity, if we sway, we want it at some point in the future. And the current solution treating capacity is about $55 million.

So current capacity, this does not include composite parts for prepreg, for composite materials $40 million plus $55 million. Let’s go to Slide 16, recent development. So yes, a little bit backwards here, which we already covered this, but Middle River Aerostructure Systems our largest customer and customer that’s been wonderful customer to work with.

I think they probably feel the same way about us, but you have to ask them that question. They were sold to ST Engineering Aerospace, sold by GE Aviation, ST Engineering Aerospace recently and ST Engineering Aerospace is a major global aerospace company based in Singapore. We know this company very well. We think very highly of them.

We think, they’re a great company and we’re very pleased with that result. We know this company for 10 years. It’s not that we just got to know them, but we’re very pleased with the results, very happy about the new ownership of Middle River Aerostructure Systems.

The other development, interestingly Park is now one of two remaining American-owned aerospace composite material manufacturers. Two of our competitors, U.S. competitors were sold recently to foreign-owned company. So we’re one of two left and you’re probably asking you who the other one is.

It’s a company called Hexcel, which is a company much larger than Park. So there is Park and Hexcel were the only American-owned composite material manufacturers left in the U.S., Park name change. So, we are planning to change our name and it’ll have something to do with aerospace, and we are going to ask you to approve it.

We’re a New York corporation, Park is. So, New York corporations are required to get shareholder approval for name change. So when we send you our proxy for this year’s proxy vote, we’ll be asking you to approve a name change and a change of our name for Park Electrochemical Corp for something else, which will be aerospace related.

Again, not very well known company, so we – people are confused by her name as to who we are. So, we wanted to help eliminate that confusion as much as possible. A security analyst coverage of Park. Yes, we had – we had one analyst and the gentleman left the firm.

So now, we have no coverage, which is really unfortunate, because the fact that we’re emerging. We have emerged, I should say as an aerospace company, that transformation is complete, right? But now, there’s nobody covering us. But the good news is that we are looking for coverage by analysts that are more aerospace-oriented.

The guy that was covering us until very recently with an aerospace specialist, the very good analyst, but not an aerospace specialist. We’re looking for analysts that are more aerospace specialists , then we’ve had some quite promising discussions with a couple of analysts.

So, we’re cautiously optimistic, let’s say that, maybe one of them will pick up coverage pretty soon. That would be a very good thing for Park if that happens. Slide 17. Another new things. We had our 65th Anniversary recently. Actually, on March 31, so a little bit of history here.

March 31, 1954, 65 years ago, my father, Jerry Shore and his partner and my second father Tony Chiesa, started a company with about $60,000 bucks that they had leftover from the war – war duty. In the top right, Park’s Founders, my father’s guy leading forward, that’s Jerry, Tony’s in the right? They’re tough customers, I’ll tell you.

They started this company in a small factory, basically, a garage with five employees in Woodside, Queens, Queens bottom right. The car that what you’re seeing with the red owning that was the facility, not the two things in a side. And you can see it both sides are garages. So, I think it probably was a garage. You can see the doors.

This is a current picture, a Google Map’s view. It’s not going to look like back in the old days. Original sales in 1954, $124,000 not million, $124,000. Pretax profit, $887.38. And we always had a thing about making money of Park, good years and bad years more or not. Those had that thing about making money.

And we actually pay taxes from the first year, $226.21. We’ve been a taxpayer for a long time. The first invoice, which were $300, and it was handwritten by my mother actually, who came in to do the books every now and then I guess and it was to GE connected actually, so isn’t an interesting.

So many obstacles and roadblocks were thrown Park’s away in the early days, but our Beloved Founders were unstoppable. So, the world through many obstacles their way, but the world really didn’t have a chance, because they were not going to be turned down. They’re not going to be turned back. They’re unstoppable.

And that unstoppable spirit of a Beloved Founders was with us today in our minds and our hearts. Next slide. The long journey, is the 10-year journey, it’s been long and difficult 10-year journey from when we first opened that first factory in Newton, Kansas, 10 years old, and I was open with a kind of in quotes. But we were severe, it did not quit.

Many challenges need to be overcome. Much adversity needed to be faced. Many sacrifices need to be made. Going into aerospace from nothing to very complex and challenging business. But why we do it? As I said, we want Park to have a future and we took a very difficult path to get there.

We were laughed at and dismissed as irrelevant by some, but they’re not laughing now. Maybe, they’re outside looking in, they only get business back, which are lost to us. We’re not going to get it. Many, maybe most thought we were crazy to do what we did, and maybe they were right.

But it is amazing and incredible what can be achieved and accomplished with pure determination and sheer will, and the unstoppable spirit we inherited from our Beloved Founders. It is quite amazing what could be overcome. We have not yet achieved greatness as a company, that’s our singular objective to achieve greatness.

And I would, if I told you we’ve seen greatness, so I wouldn’t – it wouldn’t be true. We have accomplished great things against series sides.

A couple of examples, what our production people, they’re looking for, because a lot of folks would have said that’s not really possible, seemingly impossible to get out to produce and get out that much product in one quarter at that point. I mean, going forward, that will not be somewhat problem, but we ramp up so fast.

And then how about transforming Park from an electronics company to an aerospace company in 10 years, starting from nothing. I think that might have been a great thing as well and again, serious charge in both cases. So, we’re an aerospace company now. We earned it. Meaning we built it on our own, one brick at a time. We didn’t take any shortcuts.

We did everything the hard way. But we are an aerospace company and the foundation for our future as we built. So, thank you very much for hanging in there. A very long presentation and I apologize for that. We’re trying to – like I said, combine a little bit about the quarter, a little bit about the year, but also a little bit of background on Park.

So operator, if anybody is still listening, we’re very happy to take questions..

[Operator Instructions] We have a question from the line of Leonard Cooper, Private Investor. Your line is now open..

Hi, Brian..

Hello.

Leon, how are you doing?.

Okay. Yes, I’m good. But I sit here wondering whether all this is for naught, because almost every day we read about climate change and I wonder a real polluter. We’re making active efforts not to pull..

Well, are you talking about our production or are you talking about the end products?.

About both, factory....

Okay. Well, I mean as far as our production, we’re very, very careful about respecting the environment, particularly any kind of emissions, we have very strict standards that we comply with. So, I don’t think we’re a polluter. I don’t think so.

In terms of the end product, so, if you looking at the – like the leap engine for instance, the whole turbine only engines are to be more fuel efficient. I shouldn’t say the whole turbine index some major thrust of it that are fuel efficiency, not – you’d have to talk to Boeing Airbus. but my guess is it’s not just to protect the environment.

So, you get better efficiency, better range, better performance out of the airplanes. So, I looked at some people are saying that we need to all take trains in the future. No planes. Well, if that happens, it’s probably not a good day for park, because we’re an aerospace company. We’d like stuff that flies..

Well, I wouldn’t worry..

No. Okay..

Keep up the good work..

Well, thank you, Leon. Okay. Yes, sir..

Go ahead..

I guess that’s it from Leon..

our next question comes from the line of Christopher Hillary with Roubaix Capital. Your line is now open..

Hi, good morning..

Good morning..

First, congratulations on the progress and thank you for all the clarity on your business and your forecast. It’s greatly appreciated..

Well, I glad you liked it. As I said at the beginning, we’re really looking for input on any recommendations for future quarters that what kind of things you’d like to see or hear, but thanks for the input..

Yes. I certainly think medium-term targets are an excellent way to give an outlook in the business that balances a long-term with the short-term reality. So, thank you again for that.

I guess my question was, I wanted to ask you, it’s unusual to find a company of your size growing at your rates, at your level of profitability, particularly during a project ramp.

Can you share any comments that you might have about how you’re managing your profitability as you go through these numerous products are ramping up?.

Well, I don’t want to be kind of too much of a wise guy about it, but let’s talk about 1954. I mean the company made whatever $270, but we’ve always had kind of a thing. And this I’m curious about making money and sometimes more, sometimes less.

We’ve gone through difficult times, difficult transitions, five, six years ago, we were going through a difficult transition, to try and get aerospace up and running with a lot of setbacks. A lot of things weren’t going right. But making money is something always be pretty committed to. So, we manage our business very carefully.

now, we’re always looking for opportunities. And as you’re kind of, I think, complying anyway, those opportunities require investment, right? but we don’t do pine size stuff, it has to – for us, be real as to be something tangible. We’re not like dupont, I’m not – some other big company like that, I’m not putting it down.

That’s good for them, where they can invest in kind of Blue Sky R&D that’s not for us. the things we did was with MRAS are just wonderful, because they helped us a lot and we worked with them closely.

they helped us develop these products, developed the technologies, get them qualified, get them unlive programs and if you’re in the aerospace, especially materials, you’d think, well, I could spend a lot of time and money developing new product, but who cares, because it’s not going to be qualified in the program.

They could take 10 years and they never, it’s like the thing about a – what is it four or a tree falls in a forest and nobody’s around, let’s make a sound as a matter. So, I don’t know how to answer that question except to tell you that it’s something that we talk about every damn day, everything, all the opportunities, all the programs.

We know what we’re about. We know we’re here to make money. We know this is a – look, we really love what we do, but we know we’re here to make money and that’s no joke for us. So, we’ll have some setbacks, we’ll have some bad times, good times, better quarters, worst quarters. But we never lose sight of that, that we’re here to make money.

So, I don’t know if that helps at all, because I’m not giving you specifics, because there is not one specific thing I can give you. I think the main answer is the underlying theme of our kind of mindset about who we are and what we’re doing and why we’re here.

And our ability to have a future, we think it’s very dangerous to get into this kind of mindset about, oh, don’t worry, things will be great three, four years from now and just bear with us while we’re kind of not making money. I think that’s quite dangerous, I do anyway.

And we’re committed to not allowing ourselves to kind of get into that kind of mindset. Is there anything else more specific that I can help you with though, because I wasn’t….

Sure. I understand.

I guess it’s still a general question, but I sensed in your comments today that you are potentially a bit more confident or enthusiastic about the company’s ability to add incremental business partners or projects, is that a fair assessment of your comments today?.

I think that’s right. I agree. And just one other comment about that is that credibility is the really, really, really big deal in aerospace, why is that? This aerospace such a conservative industry. And the reason is that it’s just very risk adverse. I mean, you don’t want to make a mistake. Here’s – look what happens when you make mistake.

It gets to be, front page headlines of the Wall Street Journal. I mean, if you’re making screwdrivers and make a mistake, you are probably not going to get – make the front page of Wall Street Journal and CNN and everything else.

So there’s a lot of really deep risk aversion, but the credibility that we have from being on those GE Aviation programs, GE Aviation is known to be – well, some people say maybe the most difficult, large aerospace OEMs to get qualified where to get on their programs. I know people say all this. They are too strenuous.

They do too much in terms of the qualification procedures. There are too tough and they complained, but look, it’s their business. They are the right to decide how they want to run it. But the point is that the industry knows that.

They know that we’re qualified and it is very critical structure but is very important structures and that gives us enormous credibility. So the credibility gap has gone, it’s closed. So when we look at a new program, they’re not going to say, who are you and what are you qualified on? Because they’re not going to want to take the risk.

Look, I’m the first guy that really [indiscernible] program once you come back, and do something else. And I’ll be the second guy, the third guy. So I think that credibility helps a lot and the stuff we’ve learned over the recent years and helped a lot. So I think you’re right. I think we are in a better position to take on new programs as a result..

Thank you for that. And then I want to say, I agree with your commentary about the M&A landscape and the types of transactions that you look for. It also seemed today that you sounded a bit more optimistic that some opportunities were in the pipeline.

Is that also a fair reaction to your comments today?.

The M&A pipeline..

Right? It sounds like in the call, you are a bit more confident that some things were starting to shape up, whereas maybe in some previous periods, you seemed a little bit less certain..

Well, we’ve been more active. We’ve contacted a number of companies and in many cases, like I said, we were put in touch with these companies, by these OEMs, looking for some more help. And we have another list, which has got a couple of weeks ago for one of our OEM friends and we need to follow up with that list as well.

We’ve been kind of tied down with they’re getting our quarter done, everything else, but we need to get back to that. So, the way we – what’s happened for us is that these are not companies that are hard bankers to sell. Sometimes they are individually owned, family owned, but have some unique or interesting technology.

So the first reaction is, well, no, we’re not for sale. I mean, okay, all right, well, let’s stay in touch. We’ll see you at the trade show or something like that. Let’s keep talking, and often they’re very open. We will not do hostile takeovers. This is a private company anyway. So it’s not like we’re a threat to them.

And maybe they were a little interested in the back of their mind. So I think it’s a process and what we can do is start the discussion, but we can accelerate the pace of it. And if we try to, that problem would just turn some of these people off.

So I would say, we’re more active, but to some extent, it’s going to be a circumstantial as to whether and when we bring something to the finish line..

Well, you certainly have this strong track record with your capital return in investments. So I encourage you to continue doing what you’re doing. Thanks very much..

Thank you for your comments..

Our next question comes from the line of Brad Evans with Heartland. Your line is now open..

Good morning, Brian..

Hi, Brad.

How are you doing?.

Well, thanks. Hope you’re doing well. I thought the presentation was highly informative, too. So thank you for the presentation.

I just had a follow-up question on the new business pipeline and I was hoping that if you could just qualitatively discuss how that pipeline has changed in terms of how you want to characterize it in terms of size or activity as it relates how big or why that funnel has become or how it’s changed in the last say six or 12 months and how that funnel could affect the 2023 forecast that you put out for – that you’ve had out there for some time now..

So that forecast, Brad, doesn’t assume any huge home runs or grand slams. It’s not like we’re thinking some major programs are going to come out left field. That forecast is kind of more of a working-class forecast based upon things we know programs we’re working on and programs we hope to get on rather than some kind of wide-eyed optimism.

In terms of the funnel, yes. So I think the funnel’s pretty good. I think we’re a little challenge because we need to be – we need to put the resources into these and I think we need to do a little better work, do a little bit better job of putting resources, identifying and putting resources into the opportunities.

I think they’re a little bit – they’re more than we used to. And it’s important that we don’t pass them off, because we’re so busy right now, that revenue is growing we don’t have to worry. Of course that would not be a good attitude.

So I don’t think that it’s very helpful because I know what kind of perspective that gives you, maybe in some of our future calls we should have somebody from Marketing on or maybe Mark, our COO and maybe he could talk a little bit more about some details. But sometimes the problem is that the customer doesn’t want their name mentioned.

One of the things that we are really excited about is when they called eVTOL, electric vertical takeoff and landing vehicle that’s being developed by large OEM and actually in Q1 this quarter, we’re expecting $500,000 of revenue and that was pushed out.

We used to redesigning the due profit on your project redesigned to pull it back for that, but that’s a really nice program to be involved with. And some of these are going to be larger, some smaller development course, so who knows, it could be more than that. I’m not sure we would have seen that kind of program a couple of years ago.

I’m not sure about that.

The other thing that I would just mention is that, like I said, Brad we’re really pleased with the ST Engineering Aerospace acquisition, they’re really good people and we know them for a long time and we’re hoping that it’s possible that will lead to more opportunities, not just through the Middle River, but through the other areas that ST Engineering Aerospace involved in.

So, we’re pursuing that and we’re hopeful. So, I don’t know, but maybe we’ll try to do a better job during some of our coming calls with some detail on and maybe talk through some of these opportunities.

Again, I just have to mention, we may not be able to mention names at some case, that’s always a little bit of an issue, especially when we’re talking about new stuff, development stuff, which is I think what you’re interested in..

Right. So it sounds like the new business pipeline is highly active and it’s limited by resource constraints and it’s a good problem to have. So keep up the good work there.

I’d be curious to follow up question on the pipeline as it relates to the military and space end-markets, which I know we don’t have a lot of exposure today and the UAV market is listed as – you’ve got that in the compendium here as one of the end markets you’re targeting.

I’m curious if you could talk about, how you see the military and the space and markets perhaps as a growth potential for the company over the next several years..

So it’s one of our target markets. We also have a potential product, when you were thinking of developing that would be for a composite to use in space. We do have our structural program, which is used in space programs like the James Webb Space Telescope. Also with that, the fact that we’re one of two U.S.

owned composite material companies might actually help our penetration into military and space. So we’ll see you about data, I’m not sure, but it’s one of the markets that we’re looking into those – I would describe it sounds like, casual one of the markets where we’re trying to pursue.

The UAVs I think we’ve mentioned Brad, this is one of our large customers in the past. And I think most of what we do with Kratos relates to UAVs and there is eVTOL program that we’re interested in.

So, well I shouldn’t say interested in and we’re qualified on and we were expecting to actually ship, like I said, $500,000 in Q1 on that program, but it was pulled back on redesign. So those are areas that we really like.

If you talk about Boeing and Airbus primary structural programs, I’m not sure that’s going to be our future so much, those areas are very protected by the common suppliers.

And we’ve had a couple of go rounds where we – one of the programs where we’re supposed to be honored, we were being encouraged, they did trials with our material, everything was told to be great and all of a sudden, well, you’re not getting.

And we suspect what happens, the incumbent heard about [indiscernible] and did something to protect their turf. And we feel that in that area also the way we’ll get in could get in would be being very price aggressive and that’s just not our business model.

So we liked these kinds of more military things space things, UAV things, the things that are being developed like these, eVTOL vehicles that are being developed by number of companies. So I would call urban mobility or something like that.

So again, I guess the emphasis is more on these things rather than you sell large structural programs like Boeing and Airbus..

I’m sorry, Brian, did you say that you, you are shipping presently to Kratos at this point?.

Yes, that was I think – I think a couple quarters ago, we announced the Top five customers, so they’re important customer..

Sorry, I forgot that. Thanks for that. I did not recall that. Then just the last question I have is just a technical question for Matt. So the cash in out dynamics as you have on Slide 11, as you said, Matthew, that $19 million transition tax installment payment is paid over eight years.

So, I mean over that period, clearly the company will be generating free cash flow beyond the current year with the Newton, Kansas expansion. So that, I mean, clearly that’s a taxable it has to be paid, but it’s over a longer time horizon.

So I mean investors should think about that $19 million as your cash that you could use today to deploy strategically, correct?.

Yes. If everything is going right, we should definitely be generating cash from our operations over that period of time. So there is – in the near-term there is some availability of that, as long as we are confident that we’re going to have offsets to make sure we cover those taxes in the future.

But we just want to lay it out that we – there is a commitment, and the 115 is really more of our starting point to generate to cash flows and use that fund of money to – for various opportunities make….

Understood.

But the $19 million is a ratable payment over eight years, correct?.

Yes..

Okay. Thank you very much..

Yes..

Okay. Thank you very much..

Seven remaining now..

Seven to go, yes, seven to go. Yes. Brad, is that over or maybe the quest on.

Operator?.

Our next question comes from the line – yes, we do have a question from the line of [indiscernible]. Your line is open..

Yes. Good morning..

Good morning..

Question about the special dividend in February because of the sales transaction, will that be considered a return of capital?.

Oh Matt, I’m pretty sure, it’s not a return capital in this case, but could you backing up on that..

No. It wouldn’t be..

Okay. The second question regards redundancy. So I would presume the greatest natural threat in the Wichita area is tornado.

Does it make sense to build the adjacencies build these for redundancy?.

So it’s a good point, but actually that’s – statistically that’s not the case, it would be more like a fire that would be the biggest threat to factory. So even on Wichita area more likely to have a factory stores by fire and then tornado.

So it’s a good point and it’s something we discussed and we had a way of pluses and minuses, but the pluses of having adjacent factory is much greater than any risk of one tornado wiping out to factories, pretty unusual thing, there have to be a right trajectory in the right path, highly unlikely.

But if you notice the – even though there was a passageway between two factories, so we can use both buildings in an integrated way and that’s both for materials and people, it is two separate buildings of the fire door at the end of each passageway so that if there is a really big fire, one building would be protected.

So it’s a good point and we certainly spent a lot of time thinking about it, we talked to the people at GE Aviation at some length about it as well, because remember this is just something that they wanted and they it’s hot just the GE Aviation, there is Airbus in Boeing, they’re the ones ultimately who really are very concerned about redundancy, it was okay from their perspective, but more importantly from our perspective, we thought that it was okay, we live in tornado country we’ve been around for a while there are, so it’s not a new thing for us and we think that we’ll be okay..

And my last question in this meeting and previous meetings. There’s been no mention of the Textron program on their aircraft. Is that….

Scorpion?.

Yes, the Scorpion, has that – done two test..

What we decide – sorry, I interrupted, what was your question?.

Where is that right now?.

Okay, sure. I was just going to comment interesting that we just saw that one of the prototypes are flying by our plant last couple of days we take pictures of and videos we used a new airport for test flights. So you really need to talk to Textron about that or go on into the website.

But my understanding is that all the – they built prototypes, they are flying prototypes, they did some test articles. But at this point from our perspective with the programs on active, my understanding is, and again, I feel a little bit uncomfortable because I don’t want to be doing disclosure for Textron.

My understanding is, I just pointed doing more testing maybe for military and stuff like that, but mostly they have to – the objective is to sell the airplanes. I think the airplanes are fully developed and now they’re trying to get sales of the aircraft.

So we’re sending by way now, but at this point, we’re hoping that they start to sell the airplane, we hope to get – they get a per sale and then we certainly will be talking to them again,.

Thank you very much..

And I’m showing no further questions in queue at this time. I’d like to turn the call back to Mr. Shore, closing remarks..

Okay. Thank you very much, operator, and thank you all for hanging in there for, it’s a long call, I appreciate it. So that’s it, if you have any follow-up questions give a Matt or me a call.

Have a great day, we’ll be talking to you pretty soon because our first quarter ends just in a couple of weeks, we’ll be talking to you again on our first quarter pretty soon. But have a great day. And like I said call us if you have any questions. Thank you. Goodbye..

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day..