Good morning. My name is Chris and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Fourth Quarter FY 2020 Earnings Release Conference Call and Investor Presentation. 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..

masks, taking temperatures, prescreening necessary visitors, additional cleaning and disinfecting, adjust shift schedules so we can get a little more distancing social distancing where possible in a factory.

Good news is our county in Kansas still has a limited number of cases, I think maybe nine the last time I heard, which obviously is not like we're used to in New York. Very fortunately, we've had no cases at Park at this time.

I just have to let you know, if we do get cases there's a possibility we might have to close for a couple of weeks just to clean up the factory. And what we did, we got ahead in our military programs in case that happens. We're doing everything we can to prevent it. But of course, we can't guarantee it.

I just want you to know that and we're not saying that's going to happen. We sure hope it doesn't. We're not planning on it happening although we have contingency plans if it does. That'll be -- probably be a two-week shutdown. Our people are doing great. Go on to slide 21.

In Kansas, working on projects and new initiatives, we could just not get to in recent years because we are driving our operations so hard. I know it's a common theme. You heard a lot about that from us. You probably got tired of hearing about it.

But we're taking advantage of the additional bandwidth, we now have available as a result of the reduced production schedule. So there are a number of initiatives a number of things that we're working on and all of them are good. And there are some more exciting opportunities for Park. R&D efforts we're not reducing them.

We're even attempting to increase them. I've heard some companies saying they're reducing their R&D efforts, their R&D program or expenses by X or Y. Not at Park. We're not lavish spenders in R&D to begin with or anything else for that matter, but we're directing some of our freed-up bandwidth to R&D projects. I don't know if you noticed.

When we recently introduced a new product E-752-MTS mid-toughened epoxy prepreg product and this information was covered in a news release. And we hope to be able to make additional product announcements soon as we work on a number of additional products at this point in R&D. Slide 22. So what's going on? Major expansion in Newton, Kansas.

We're proceeding with the project. Our completion is pushed to the right a little bit early 2021. Part of that was just weather. We had a real bad winter, which prevented some of the construction a little bit because of the delays with the economy and virus. We're deferring some items.

So the original budget last budget, we told you about $20.5 million probably down to $18 million, which we're deferring some of the items.

And well why are we doing that? The reason we're doing that is we're -- it's actually a good thing because – because of our reduced demands, we don't have that intense pressure to get the factory up and running right away.

So it gives us the ability to kind of hold back on some of these things so we can make decisions three, six, nine months down the road as to what would be ideal or optimal for what we need rather than being have that much pressure and then just we've got to get this done.

A year later it may not have been what we really would want when we look back on it. But we didn't have that luxury. So we're taking advantage of that. So that budget may come back up later on to that $20 million number or something close to it. But right now, we deferred some of the items.

And we are retaining flexibility in some of the items where we don't feel we need them right away. It gives us the flexibility to decide later on what to do. The déjà vu all over again. You know what? It's kind of a funny story, but I think I'll pass on it just because we're running out of time here a little bit. So slide 23. CARES ACT.

We've not applied for any of these benefits or loans. We don't intend to. It's just not right for us. We -- Park has significant cash, no debt as we'll talk about. And we think that money should go to people who are suffering, lots of heartbreak despair and tragedy and we don't think we should take that money.

I'm not placing judgment on anybody else who has taken money. I'm just saying for Park this is how we feel about it. We're not taking that money. Park's cash dividend, let's go on to our cash. So Park has paid 35 consecutive years of uninterrupted regular quarterly cash dividends without ever skipping a dividend or reducing the dividend amount.

Park has paid $538 million in cash dividends $26.25 per share since the beginning of fiscal 2005. $538 million that's a lot of money for a smaller company like Park, don't you think? Well this is always subject to change in part in the future. Our current intention is to continue our regular $0.10 per quarter dividend. Balance sheet.

Yes, we paid $538 million in cash dividends, but we still have $122 million of cash and no debt, no long-term debt. Is that good luck? Is it just an accident? I don't think so. I don't think so. So we've not taken any shortcuts. We don't cut corners. We built something from nothing at Park twice now. We made money the old-fashioned way.

This may sound cliché, but if you live it every day, you feel that it's palpable. So nobody ever gave us anything. We never asked -- or we don't want anything from anybody, but there's another reason that's not just good luck and that's called discipline. We've been looking as we keep telling you for the last couple of years at acquisitions.

And we've also said it's very frustrating because the valuations don't make any sense to us. I mean, we looked at companies where they were sold for six times revenue, six times revenue. And it's like what, I'm kind of old school, how can that be? And these didn't have the cure for cancer.

They maybe thought they had a cure for cancer, but we didn't think they had a cure for cancer. So the valuations just got to be wacky out there. But it's a pattern. Every time we looked at something, the valuations were just way ,way -- no I'm not talking about 10%, 15%, 20% higher than we thought.

I'm talking about three, four, five times higher than we thought was appropriate. And we kept getting told by bankers and such that "Look you really got to get in the game. You got to spend your money because you're missing out." Well we had discipline and we did the right thing.

We took care of our shareholders' money and we didn't waste it and throw it away because we got emotionally involved or excited. Let's go on to next page it's still following on the point about our balance sheet.

Great opportunities for Park to potentially buy a company or companies, which are highly strategic for Park, not just any company, something strategic for Park at very good or even distressed values. Now we don't want to sound Machiavellian like we're trying to take advantage of somebody else's pain. But it's our job to do the best thing for Park.

So if there's a really great acquisition opportunity and their values are distressed we weren't going to pay more than the value of the company. It could be a once-in-a-lifetime opportunity for us. I guess, I spoke with some bankers about this.

And they -- maybe when I'm being told you may have to wait three or four months for things to settle out before these companies become available. Right now I think people are so confused they don't know what to do. We'll see.

It could be a really good thing for Park to have that balance sheet, to have that cash, to have no debt, that cash very important asset for Park real value now. Great opportunities for Park to invest in its own business and new business opportunities at a time when others may be looking for cover really important thing to think about.

Other people may be kind of hiding hoping things will get better soon, just kind of waiting sitting and waiting. We're not waiting for anything. The world is now full of human tragedy and heartbreak which we mourn deeply. But sometimes good things can come out in even the worst crisis.

We believe Park is well positioned to take advantage of the opportunities presented by the global crisis and we intend to do that. And that -- maybe it sounds like it's cold-hearted or Machiavellian, but I don't think so. It's our job to do the best we can for Park. We're not planning to hide in a bunker for the next few years.

We tend to make this our time. It's all again, I'm hearing that people are very deflated very upset and maybe want to hide maybe want to even retire. They don't want to deal with the difficult realities. But this is not our first rodeo. And in 1999 or 2000, I think our electronic sales were like $520 million.

Next year, maybe $230 million something like that. Get the point? And that was not because of an economic crisis. That was because the electronics industry got way ahead of itself overheated and it collapsed. We're not going to any bunkers. Others may falter, but Park is not going anywhere. Okay. Operator so we brought it in a little under one hour.

If there are any questions anybody still on the line we're happy to take questions at this time..

[Operator Instructions] And our first question comes from the line of Sarkis Sherbetchyan with B. Riley. Your line is now open..

Hey guys. Thanks for taking my question. This is actually Aman. I'm jumping in for Sarkis. So I wanted to ask you mentioned that your -- that military makes up 35% of your business.

Whatever you could comment, how do you expect the military and space program to grow for Park in the medium to long-term?.

So we really want to get on more military programs. And it's an important question because we're not looking to get on these big programs like the F-35, high visibility which means that they're very over budget and very delayed. And they're susceptible to reductions, cancellations. Look what happened to the F-22.

All of the military programs run -- are niche programs, which I think are very safe and very important programs. We'd like to get in more of those programs. I don't -- it's not going to -- to me it's not going to be like a GE Aviation thing where you get a $30 million per year military program.

It's probably going to be a lot of programs one after the other. We're very delighted with the Kratos program. We're very delighted with the ablative programs for the rocket nozzles. We're delighted with the drone programs, other drone programs. So we need to get out there and go find the opportunities, which we believe are there.

But I don't want to somewhat give you a feeling that it's going to be like a one big event where -- great we got a $20 million program.

We actually are not really looking for that kind of thing, which is what we don't want to do is set ourselves up or getting the rug pulled out from under us when these big programs, which are high visibility in Congress and everyplace else, we have the rug pulled out from under them. The programs that we're on nobody even knows about them.

Nobody is interested, but they're very critical defense programs for our country, and we'd like to be on more of those. So this is a little bit of a wake-up call in a sense not that we're pulling back on commercial, we're doubling down on it.

But I think we didn't have a real focus on military, we always like military but it wasn't a main focus for Park. Now it's becoming more of a focus for Park. I know that doesn't give you a real hard answer to your question, but I think that's probably the best I can do to give you some perspective..

No. No. That's very helpful. So I wanted to ask given your strong balance sheet and the current market dislocation, I mean, you did talk about M&A.

But I mean do you anticipate putting that dry powder to work via M&A? And like where do you see Park doing M&A? Do you think it's somewhere where you can maybe expand in your military business, or would it be somewhere in the bay of the commercial side?.

So -- okay. So that's a good question. It may be both, because we're a materials company, and often materials companies aren't going to be focused on one end market or another. Now we're actually a little unusual, because we only focus in aerospace. A lot of our competitors, they'll do aerospace. They'll do windmills.

They'll do construction and do automotive. We don't do any of that. We're just do aerospace, but when you're in materials, aerospace materials are often going to be in defense and commercial biz jets. So I really look at it like that.

We look at, okay, what is more strategic? What is more unique? What kind of products that we want to be in that we're not in now which we feel absolutely kind of strategic maybe niche let's call it for the future? So, it's not like a discussion you have with an investment banker, where they just say, okay, when you put a nice graph on the screen and this is our chart.

We want to be in this segment and that segment. We're way, way beyond that.

We're much more into the nitty-gritty of what does this really mean? What would this acquisition mean three years, four years, five years down the road? What kind of programs do we want to be on? What kind of technologies do want to be in? We want to be in hypersonics as an example.

So, again, I'm sorry, I'm probably not giving you a real great answer, but that's probably the best we can do, but going back to the main point about acquisitions, yes, we think that the cash is a great asset for Park now maybe once-a-lifetime kind of asset.

And we feel like the world has turned on its head maybe even a good way for us, because we told you three months ago we were very frustrated with the valuations. Now we expect when we're told the valuations would come down, I mean, some companies don't even have a choice, because they're distressed.

A lot of companies expanded by doing what? By taking out -- by putting a lot debt in their balance sheet, and I suspect that their banks are going to want to get that paid -- money paid back. So we'll see, see what happens. But we're definitely being overt about our interest in these kind of things, and I hope people are aware of it.

Maybe it's good to have this conference call, because maybe other people aren't aware that we're looking..

Got it. Thank you. Last question for me. I just wanted to get a bit of color on your supply chain.

Do you feel comfortable with the flow of raw materials to support Park's operations in the near to medium-term?.

Well, it's an excellent question. We probably should have touched on that during the presentation. It's a real challenge managing our supply chain. We did have an issue about six weeks ago, and we scrambled and we worked with MRAS. We qualified somebody else really quickly.

So it's a lot of managing now, because the supply chain has all issues that everyone else does and some are doing better than others. Right now, it's okay. Right now we're fine, but we need to be paying a lot of attention and we need to be looking at alternatives and contingency plans and that kind of thing.

So I would guess if I was going to -- asked to predict something that if you look for a year that you asked me a year from now, I'm not going to say, oh, yes everything is smooth everything is great no issues. I would probably say, yes, we've had a lot of challenges along the way.

Hopefully, I would also say, we -- kind of way to overcome and manage through them. But I got to -- I would say, it was just a walk in a park and we had no issues..

Got it. Thank you. I’ll pass it on..

Thank you. Thanks a lot for your questions..

Thank you. And the next question comes from the line of Christopher Hillary with Roubaix. Your line is now open..

Hi, everyone.

How are you?.

Good.

How are you doing, Chris?.

Good. Thank you. Good. I'm going to miss some of your comments, I apologize.

But I just wanted to ask, as you go through this period of kind of disruption and slowdown, is it presenting some opportunities for you to just increase your efficiency as you don't have to be in that rush mode that I think had been a challenge for some time? Do you see some ways to just run more efficiently restructure your factory floor a bit those types of things?.

Yes. It's a good question. So it's kind of a two-edged sword. As our revenues go down, then there's a part of it, where you say you're using your factory and resources less efficiently, because your fixed costs are just being absorbed over less revenue. But it's a very good point. We talked about fiber in the fourth quarter. It just drives us crazy.

We got way behind. And we had a forecast that this fiber supplier wasn't able to quite make it and really made it very difficult for us in the fourth quarter. And there is economic inefficiency, in getting everything out the door in the last two or three weeks. That's not a smooth and efficient way to run an operation.

So right now, of course we don't have that problem. We don't have the issue with shortages anymore. I'm sure a supplier would be happy to give us more if we wanted it. And so it does give us an opportunity to do exactly what you're talking about. And not just in terms of raw materials, but also in terms of how we operate the business.

And it's something we're -- I'm actually glad you brought it up. This is something we spent quite a bit time is actually we kind of thinking through, how we do this? How do we better optimize our situation? So, it's a two-edged sword.

There's part of it, where you say there's going to be less revenue running through your factory, less production, less coverage of fixed cost. But the other part of it is that at some point, you're running so hard that you're over the -- you're on the other side of the curve where your efficiency is going down..

Okay, great. And then, you talked about it a bit. But just are there any other areas you might highlight where you think, the business development opportunities are improving more? I mean, I think you alluded to it. But if you could comment further that would be great. And thank you again. And I hope you all stay healthy and safe during this period..

Thank you and same to you and yours. Well, I guess, let me answer that question two ways. There’s a kind of internal opportunity that we're working on internally in the factory. And those are interesting. Because they are things that were kind of always on the back of our mind we wanted to do. And I'm not just talking about internal efficiencies.

I'm talking about going into other areas like you have new product line offerings, or other service offerings, that we were just never able to get to. Because our emphasis for the last couple of years was just get the stuff out the door, gets the stuff out the door, keep the customer going, never disappoint that customer.

And that emphasis has changed to the point where we have the opportunity to look at these other opportunities. And we have been doing it too. I think probably for the last three weeks, Ben and a couple of our folks in Kansas are kind of working together on -- we have a whole list of things. And we update it every couple of days.

And we're doing stuff too. We're pursuing some of these things. I really can't talk about them. Because they're a little sensitive right now some of these opportunities. And then of course the M&A area, we've discussed it already. But what we want to do is not compromise and just buy something because – okay, it's aerospace.

But the question is always going to be, how does this make Park better long-term? Why does this make sense? That's why I said, we're interested in buying highly strategic companies as acquisitions rather than just "Oh, they're in aerospace." So -- and obviously at good values. So hopefully that answers your questions, at least a little bit.

Operator, are there any more questions? Operator?.

And at this time, I'm not showing any further questions, on the phone line..

Okay. Thank you very much everybody for hanging in there. This is a record for Park over an hour a call. I'm kind of surprised any of those still even on the call got to ask questions, when we got done with the presentation. But thanks again for your interest. Appreciate it very much. Call us any time.

And we'll be talking again pretty soon, because our first quarter ends at the end of this month. And we'll be announcing I don't know when, but my guess is end of June early July. Okay. Take care, everybody. Good wishes to all of you and your families. Take care of yourself. Be safe. But would be good to get the country open as well a little bit I think.

Okay. Take care. Thanks again for your interest. Bye..

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And you may now disconnect..