Good morning. My name is Michelle. And I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Second Quarter Fiscal Year '22 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..

Thank you, operator. This is Brian. Welcome everybody to our second quarter conference call. I have with me Matt Farabaugh, our CFO. As usual, of course, -- as most of you know, we announced our earnings this morning. In that earnings release, there are instructions as to how to access the presentation, which we're going to go through now via webcast.

The presentation is also posted on our website. And I think you really want to have a copy of the presentation in front of you as you go through it to make this call more meaningful. As usual, we try to provide inside interesting perspective. We can't cover everything. We don't spend a lot of time ticking through dry data numbers.

That's really not what we try to do in these presentations. And I want to warn you, this could be a long one. I think the last three or four have been, it could be like 45 to 50 minutes. So hang in there if you can. And Matt and I will be happy to answer questions so why don't we go through the presentation. So let's get started.

Slide 2, this is our forward-looking disclaimer. Let us know if you have any questions about our disclaimer language. Slide 3 is our table of contents. We have three appendices, which are attached to the presentation. We're not going to go through those at this time.

But again, let us know if you have any questions either at the end of the presentation or you can call us later. Slide 4. Now we get into the part of the stuff we go right with the numbers. So we just announced our fiscal year '22 Q2. As you know, our sales were $13.618 million. Look at the right-hand column here, gross profit, $4.411 million.

Gross margin 32.4%, down from Q1 as you can see, probably more or less at the level of the last couple of years. And I think that we indicated the gross margins would come down in Q2 when we did our Q1 call. Adjusted EBITDA of $3.232 million and adjusted EBITDA margin 27% -- correction, 23.7%.

So what did we say about Q2 during our Q1 investor call on July 8, we said our sales estimate was $13.25 million to $14.25 million. So it seems like we came in within the range there. And our adjusted EBITDA estimate was $3 million to $3.7 million. Again, we came within the range. Our forecast philosophy we cover this every quarter.

I just want to say, I'm not sure how much of the stuff we should go over. Because I think a lot of you are pretty familiar with us, but we still go over some of the basics just in case you forgot or in case we have some new people dial in, which we hope to. Our forecast philosophy is a little different. We don't provide numbers that we can beat.

We feel it's a little bit of a silly game. We know almost everybody plays it, but we don't -- when we give you a forecast, we give you a range, we're saying to you. This is what we think is going to happen.

We could be wrong, but we're saying to you, this is what we think is going to happen not easy happen, but happen assuming that we normally do, which is work very hard with a lot of dedication and commitment. So we're not trying to give a number that we can beat and then be here later on.

We think that's kind of selling and almost -- just not worth your time. So I just want to remind you that. Let’s go on to Slide 5. Lots of factors which affected Q2, which we want to go through. And throughout this presentation, these will be kind of things -- these are the repeating themes. Sales of the central component for missile programs.

We discussed this over the last several quarters. In Q2, we had sales of a component of about $1 million. Remember, that's low margin. We have the relationship with the supplier. It's an overseas supplier. Some of our customers and OEMs that are on these missile programs in the U.S. ask us to buy this product for them.

We have the relationship with a supplier overseas. These are critical programs. And then we sell the product, we sell a product to the customers. So there's a markup involved, but it's quite low margin.

Now the flip side, as we discussed many times, is when we actually use that product and produce the -- we call it blade prepregs and the margins are quite high.

Now once we sell the product to these customers, they can do whatever they want with it, but the expectation is that it will be used by us to produce the composite materials for these later programs for them at some point in the future.

So it flips when we produce the materials, good margin when we sell the central component basically a mark-up low margin. So second quarter, low margin -- sorry, $1 million sales of that component. Difficulty sourcing key raw materials. Yes, this is a big theme.

Over $200,000 actually on missed sales because we couldn't -- inability to source materials we needed. And then international shipment difficulties, another $200,000 of missed sales in Q2. In other words, this is stuff going out not coming in. We have overseas customers. We couldn't get international shippers to ship all this stuff.

I mean our people are really good at that too, really good at it. But we still couldn't ship $200,000 of product that was testing overseas. For us it's very simple. We ship a product, we invoice it and then we record it as a sale in that quarter. And we can't ship it. It's not going to be a sale in the quarter. So $400,000 approximate miss there.

And that doesn't sound good, but here's the thing. We had over $1 million, additional dollars at risk in the last couple of weeks of the quarter. So our people did a really fantastic job at the SME [ph] in getting this stuff done. A lot of brute force, a lot of moving teams around, a lot of juggling, a lot of logistics.

But it was a little bit of nail-biter for us because there's a lot more at risk. All based on the same factors at the end of the quarter. So lots of brute force in daily battles, plus we're dealing with COVID quarantines. Fortunately, everybody is okay. Nobody's really got really sick this time around.

But that reached havoc with our production scheduling and planning because what happens in somebody's wife, tests positive, then they have to go home, then the whole crew has to go home. And we have to work around all that stuff. And this is not complaints. This is just our life that we want you to be aware of.

And I think our people did a pretty terrific job in dealing with these kind of things. Domestic freight issues. Yeah, international shipment difficulties, domestic freight issues, okay, the -- sorry, the supplier hasn't terribly can't get somebody to deliver to us.

We're talking about driving up the Kansas City train yard to we pick up some of the materials ourselves, we couldn't do that. If you say let us when we're talking about it. Additional costs for expected freight shipments. So yeah, it's kind of like a little weird. Our suppliers are really getting the product to us.

And they say, well, last minute we can get you something. But then we're expected to pay the expat freight, which, you could say that's kind of an interesting perspective but there are still costs there.

Cost escalations, if you're paying attention to anything going in the world, Washington Journals, Financial News are listening to other companies, these are not going to be surprises. This is kind of the day-to-day life of company that's in manufacturing in the U.S., not just in aerospace, I don't think either. Raw material cost increases.

Yeah, they tie a lot of them. Most of them are covered. When we enter into an LTA with a customer norm, that's based on the LTA we have with the suppliers.

No LTA, well, then we get new quotes for customers, and we're normally going to make an adjustment based upon what material cost increases, but not always covered general freight cost increases mostly covered, not always covered in terms of our P&L -- sorry, manufacturing supplies, yeah, not always covered.

So there's risk in terms of manufacturing supplies, cost for supplies can go up and up and up. Miscellaneous and other costs. Yeah, all costs a lot. You can tell me what they are utilities, wages, benefits, insurance you name it. It's a very strange environment we're in, in my opinion. I'm talking about just generally as a country.

We finally have been able to increase our people count. Remember, we talk about that every quarter, we'll give you specific later on. That's good news but there's -- to [indiscernible] here because, obviously, the people kind of goes up, the cost goes up as well. These are not any kind of excuses at all.

We don't -- we're not into that kind of use thing. We don't like that. But these are factors that we thought you would want to know about. So let's go on to Slide 6. I'll just talk about Slide 6. This is our annual P&L history going back to 2017.

You can take a look on -- when we look at Slide 34 and our forecast for the current fiscal year, fiscal '22, if you want to compare it to the prior years. But let's just move on. Let's keep going here on Slide 7. So we were not including this information for a couple of quarters and one of our important shareholders.

We really like to see this information every quarter. We said sure. So here we go. Park has a zero long-term debt. This is our balance sheet, cash, cash dividend history and capital allocation strategy -- sorry forgot to read the caption. Park has zero long-term debt. Park has $113 million of cash and marketable securities at the end of our Q2.

We got spending to go to complete our major expansion, about $2.25 million, spending to date about $17.25 million. We spent about $800,000 in Q2. And the tax transition payments, we talked about those in the past. Matt's better explain that than I am, but they have to do with Trump tax law and earnings -- sorry, overseas cash. So let's see.

We have $14.3 million that we owe $7.6 million that has been paid to date and $1.7 million in fiscal was paid in the second quarter. Those payments are to be paid, the $14.3 million through calendar year of 2025. Of course, we always have every quarter, like a little over $2 million plus regular dividend.

So you need to think about that as well in terms of cash outflows. Park's cash dividend. At Park, we maintained a regular $0.10 per share quarterly cash dividend throughout the pandemic and economic crisis. I don't think everybody did that.

Park has paid 36 consecutive years of interrupted, uninterrupted regular quarterly cash dividends without ever skipping a dividend or reducing dividend amount. I'm rushing because it's a long presentation, sorry. Park has paid $548 million or $26.75 per share in cash dividends since the beginning of fiscal year 2005. Let's go to Slide 6.

Another $0.10 per share regular quarterly cash dividend was declared on September 13, payable November 4 to shareholders of record on October 1, 2021. So here we go. When this cash dividend is paid on November 4, 2021, Park will have paid $550 million in cash dividends since the beginning of fiscal 2005 with 3 exclamation points.

I don't know what you think, but for a small company like Park, that's a heck of a lot of money. But we get it, don't tell me what you did from yesterday, tell me what you're going to do today and tomorrow.

So now we go to Park's capital allocation strategy or a fancy way of saying, what are we going to do with a lot of that money for those of us that aren't really living in the Wall Street Financial world. I think that's what it means.

So acquisitions and potential collaborations, Park continues to watch and track certain potential acquisition opportunities but also strategic targeting of certain aerospace industry segments and product lines. We talked about this last time.

So we identified areas we want to go into that we think are strategic rather than just reacting to stuff that comes over the transom from bankers, let's say. Park reached out to several companies and continues to reach out to companies in the targeted segments. So we're still at it. We're still trying. Next -- going to the next slide, Slide 9.

Potential strategic investments in major aerospace and aircraft programs. Park has reached out to certain large OEMs regarding strategic investments in major new aerospace programs. So this is really interesting. These are household names OEMs in the aerospace industry.

We're aware of new programs that they're considering, maybe they haven't been announced yet. So we've reached out to them and asked that we can work with them on these programs, partly by making an investment. Obviously, we would also want the business as part of the discussion. So let's keep going. Park every dollar which cash through much syndication.

It's sacrificing a part of many park people over many years. Park's money is not easy or cheap money. That's not easy come easy go with us. So we'll not invest our cash casualty or do a deal just for the sake of doing a deal.

That money, when it comes hard, my feeling is you're going to tend to be much more thoughtful, much more careful, much more serious about how you spend it. It's not going to be -- let's just kind of throw money around for this thing or that thing a cool idea that somebody had.

If and when we do a deal or invest our cash in an acquisition or some other form of strategic investment, we will feel it's the right thing to do for Park and its owners meaning you. Well, I guess some of you were not shareholders, but many of you are. Slide 10. Okay.

This is one of our standard slides in our presentations our top 5 customers, kind of a fun thing. Let's start with Aerojet Rocketdyne, news quite a bit recently. That goes with North Grumman ground-based strategic deterrent at GBST. Have you heard about that? That's a really big deal. We're very happy to be on this program.

And we hope to get more penetration into GBST. This is -- the next-generation ICBMs very important for a country's, defense. Teramatrix composites. We now a picture for Aramatrix here, but there are multiple programs. Kratos, they seem to be in the top 5 quite a bit. And we have a picture of their UTAP-22 drone.

We're told by Cratos that we are the main supplier of composite materials for their drone programs. So anyway here, we usually try to find a different picture every quarter, you say seeing to be the top 5 quite a bit. Okay, middle river, aerostructure system. We know that is.

There's plenty of stuff about them in the rest of the presentations to all here, but we had a nice picture of 747-8 engine and cells in the bottom right. Those nacelles see they are all made with Park materials. And NORDAM Group. We featured the NORDAM group at a different program last quarter, I think, -- this time.

It's a top right, the Passport 20 engine. Now what's interesting is that we produce the materials for nacelles for and thrust versus for this engine through MRAS, but this is not MRAS. This is a component of the engine itself. It's primary structure of the engine.

And this is produced by the NORDAM for the Passport 20 engine, which goes on the Global 7500 long-range business jet. Let's go on to Slide 11. Okay. So here's another standard slide that we have in our presentations. Our pie charts. We have '20, we have '21 and we have '22 for the first 2 quarters.

And just for comparison, look at how the pieces of the pie have moved around. The commercial is back dominating -- I shouldn't say dominant, that's not right, but much more significant than it was let's say, in '21. So I don't think it's a big surprise to anybody. Military maybe a little slower. We hear generally not for us due to budget issues.

Although I guess the Senator Arm Service Committee just released its full markup and just sort this down as I can tell you about it. Good for many of our programs, including to Valkyrie. For us, military, it's really going to be the programs we're on and which ones are active, which ones are not. Military for us is very different than commercial.

Commercial, especially the emerge programs, they're going to be running, running and running every month, every week really. But military, we could be on a really good program. It will be active one quarter and then it will be active next quarter, and it will be active in the following quarter. Obviously, we have no control over that.

So that's why the military revenue could be a little choppy, but it's not to me anyway a function of the military market getting stronger or weaker. We think it's just fine from our perspective. Also niche programs around. We like those. We think they're less sensitive to the big budget fluctuations that these programs sometimes get caught up in.

Business Aircraft. For us, that's mostly the Global 7500. That's a big dog for us in business aircraft. Although we do supply into other like Gulfstream and Falcon and citation type programs. And Business Aircraft has been quite good.

So for the last, I don't know, 6-8 months, maybe 9 months for maybe obvious reasons, people are able to have a fly on business jet, I prefer to do that rather than airlines. Commercial will go into much more detail about commercial throughout the presentation. So let's keep moving here. Don't want to get bugged down.

Slide 12, this is one of the little fun slides that we do every quarter. This is a lane and data or project. We have a lot of fun with this. These are not necessarily the biggest military programs, they there are programs we think you'd find to be of interest at the top left. So we're in the PAC-3 program.

This is really kind of a fun thing or interesting thing for us, F-35 providing tracking data of an incoming missile to a ground-based intercept with PAC-3. We've run that PAC-3 program for a long time. I think we mentioned it many times. Then next one to the right, U.S. Navy NK 41 vertical launch system.

And we actually produced materials and parts of this program, but we're not really at talk about it very much, except this is a really nice picture you could see the actual missiles being launched from the deck of the Navy ship. Next one, C27 Spark, medium-range surveillance aircraft. So this is a renal material for the coast guard.

And then Avio Aster, hypersonic missile later materials, probably not surprising there. And then SpaceX Falcon Heavy really nice to be on this program. We go to get more penetration to the space programs, but we're not really in a position to talk about what we do with that program.

The niche program, as we consider radome, which Rocketmiles has been grown to be the niche mile programs. That's really like to focus. Let's go on to Slide 13. Okay. Changing gears here, updated on our major expansion in Newton, Kansas. Total budget moved it up to $19.5 million. I think last time, we said it was $19 million.

So it's creeping up a little bit. Spending to date about $17.25 million spending to go. We added up everything as to total 19%, that's $2.25 million to go. So we know the expansion is complete the way it works is that there's holdbacks with some of the suppliers when things get signed off and certified and the final payments are released.

That's why there's still some money to be paid out. Manufacturing trials in progress, which is good. Qualification runs expected to begin probably around Thanksgiving, so we're saying in December. We pushed forward with a major expansion when many others were slashing their capital spending maybe to zero good thing we did.

If we had, we'd be in a world of hurt right now. Originally, this expansion was for redundancy as you remember. But based about everything going on, we really need this expansion for capacity as well.

And we figured that out now, we've been a big trouble because you don't do an expansion and get the building built or the equipment -- design the equipment, get the equipment certified and released, get the factory qualified in 6 months. It's like a year process. So we didn't start and keep going. We have a real problem in our hands right now.

So a good thing we made the right decision. One thing that's a little new here, the picture is the bottom picture, you see the existing facility in the middle with the new offices, the facility in the left, this new facility. And this little building the right, that's actually something that's been all along.

We never really talked about it, but I wanted to just see it. It's about 10,000 square feet. Tent City aircraft works that's our R&D facility. And the name -- we came up with a name is kind of a little bit of a secret thing, but anybody can guess how we came with that name. Well, maybe we'll send you at least $1 or something like that. All right.

And then the middle picture, that's the new building with the new office -- sorry, the existing building with the office expansion sets two stories now. The building the top is the new building. Let's keep going on Slide 14. So commercial aviation, updates and developments changing gears again on the commercial aviation.

The first item we had in our prior presentation, higher jet fuel prices and environmental concern provide extra motivation for airlines to more quickly replace less fuel-efficient legacy single-aisle aircraft with more fuel vision modern single-aisle aircraft such as the Airbus A320neo. Next item.

So this is new stuff, and we're going to try to give you a little perspective here as to what's going on with the commercial aerospace, commercial aviation market. The domestic commercial aviation activity was coming nicely in all major markets, but the Delta variant negatively impacted recovery in August and September.

The passenger traffic down in August and probably September as well. September, as we fully reported, but that's the expectation. So in the China domestic aviation market is probably impacting the most of major markets based upon the Delta variant outbreak in China. But the U.S.

domestic aviation market as well as other major markets have also been negatively impacted by the Delta variant. The full U.S.

domestic aviation recovery, meaning back to pre-COVID, I guess that's what we mean by that, which have been predicted to occur in the first quarter of next year or even earlier, maybe the fourth quarter this year, maybe pushed to the right to some extent, by the Delta variant. My feeling is a very minor amount. That's my feel.

And let's go on to Slide 15, maybe we can talk about this more, why will it be a minor amount if at all. Will is temporary setback negatively impact airline orders from the airplanes produced by the large commercial aircraft manufacturers? Well, I don't know if you're running an airline, you have to -- airline business means lower term planning.

You don't just want an airplane and buy it in 2 weeks. So if there's a 2 or 3 month setback and passenger traffic data and you're running an airline, are you really going to change your order pattern. You're going to push out orders. You got to cancel orders.

We're not talking about the beginning of the pandemic when there is massive uncertainty about everything. This is a very different situation.

My feeling is that if you're running an airline, you make that decision to push out or cancel orders under these circumstances, you're probably in a wrong business, you probably shouldn't be running the airline with a large commercial aircraft manufacturing, Boeing, Airbus change or adjust the production schedule based upon this test back.

I'd be shocked. I guess they did that. I would be very surprised. In any event, we have not seen any evidence of this in our own business. Will the Delta variant trending down by the end of November as has been predicted by experts? I mean people are saying it's trending already. A lot of people saying a lot of data I guess to support that.

Also, there are other countries that started with the Delta variant before us, like India and I think UK. And we look at their patterns. So I think there's a lot of expectation that the Delta variant is kind of winding down. And by the end of November, even maybe at the end of October, we'll see it winding down even more.

So my feeling is that, yes, it did affect passenger traffic. They say that in let's say, August, September. But my feeling also is just to have no impact on our commercial aerospace business.

International Commercial Aviation has started to recover to some extent, based upon some loosening of travel restrictions and increased vaccination rates, but big body still significantly lags domestic aviation recoveries.

International Commercial Aviation is still expected to take a number of years typically recover -- fully recovered means a pre-COVID level. I don't know, maybe 3 or 4 years at what people think. Let's go on to Slide 16.

Since single-aisle commercial aircraft are designed to service domestic aviation markets as well as shorter range international aviation markets, Park believes single-aisle is the place to be in commercial aviation at least for now. Yeah, we feel we're in the right place because single-aisle that's the A320 family.

That's like the -- probably, I don't know aircraft for the decade, maybe for multiple decades, COMAC919. Those are all single aisles. 3 interesting questions.

How will GE Aviation's rise engine development affect the commercial aircraft industry in the future? Have you heard about this GE Aviation rise engine? It's actually ending with GE Aviation, that's not correct. It's CFM, which is the partnership between GE Aviation and Safran. So that's actually not correct.

But people -- will Boeing develop a new single-aisle aircraft to compete against the A321XLR, which Airbus plans to introduce in 2023.

Last one, will COMAC919 will be certified in China before the end of this year? We're not going to go into these items because we just don't have time, these would take 15-20 minutes to have a proper discussion of these items.

I just want to put them out there because they could be important in terms of what happens in the future in the commercial aviation industry and markets. Let's go on to 17. This is a slide you've seen almost I think every quarter, with some minor modifications. We're not going to cover it just as to save time, except just the first couple of items.

So just the basics here, we have a firm pricing LTA. It's a requirements contract from 2019 through 2029, with Middle River Aerostructure Systems, MRAS subsidiary of ST Engineering Aerospace.

So what is this about? When we entered this contract, MRS was a subsidiary of GE Aviation, and then it was sold to ST Engineering Aerospace I think about 3 years ago. But that's why all the programs we're on through MRAS are GE Aviation or CFM type programs.

It's the GE Aviation tie-in that existed before the sale by GE Aviation of MRAS to ST Engineering. We've done. In fact, we talked about that already construction is complete. So our deal with GE Aviation and MRAS was as soon as they sign this LTA, we're going to go ahead and build a factory.

And of course, we did that even though it was just a handshake, but of course, we'll live up to our commitments. So let's not go into the rest of the items here. If you have any questions about them, please ask. Legendary Boeing 747-8 engine style.

I love this picture because, especially this guy in the background, it shows you how huge these are all Park materials that go into these cells, lots of content. On Slide 18, update on GE Aviation jet engine programs. So let's do an update now. It's going to take a little while. So we'll try to go through as quickly as possible.

So the A320 Neo family of aircraft. This is the big, big dog. These have the LEAP-1A engines. It's ramping steeply. We had this in the last investor presentation, but let's just quickly go through it. On May 27 news release, Airbus stated A320 family, Airbus confirms an average A320 family production rate of 45 per month in Q4.

That's basically now, right, Q4 of this year. I just want to mention that it's been at 40 throughout the pandemic. That's where they held at 40. And they call on suppliers, meaning like us to prepare for the future, by securing a firm rate of 64 by Q2 of 2023, 64. That's moving on quite a bit.

In anticipation of continuing recovering market, Airbus is also asking suppliers to enable a scenario of 70 by Q1 of '24. Longer term, Airbus is investing opportunities for rates as high as 75% to 2025. And this is the picture of A320 Neo. So those are very big numbers. Let's keep going on Slide 19.

As of the end of August 2021, CFM, meaning LEAP-1A engine had a 60.25% share of firm orders for the A320 Neo family of aircraft, but the source of data as the aero-engines, which is kind of like the bible for commercial aircraft engines. So the A320 family of aircraft has two engines that are certified for the program.

One is the CFM LEAP 1A and the other ones Pratt. So this is the share, we're talking about share CFP1 engine has. That's our program, the CFM LEAP 1A. We're not on the Crack program. So that's the -- CFM is good for us. Pratt, we don't supply into the Pratt program. Let's keep going here. Assuming a 60.25% CFM share, this is assuming that.

And those are the facts now. We're not predicting that for the future. We don't know what happens in the future, but this is the current share. And it's a big backlog. It's not like just a few planes, thousands of planes, thousands of planes that are ordered. 75 A320 Neo aircraft family per month rate.

That's the rate we're talking about the prior slide represents a significant increase over the number of units forecast in our long-term forecast. So let's talk about that. In the long-term forecast that we have from MRAS, A320, if we do the math and kind of back into the math, it's equivalent to 57 airplanes per month, 57 A320 airplanes per month.

Assuming what share that assuming the 60.25% share for instance, and doing other computations, 57 compared to 75. So that represents -- it's a lot higher. Like I said, I think it's over a 30% increase over our forecast. Our forecast tops out at that, assuming the 57 number in 2024. We're not at that number yet.

We're not at that number in the forecast yet. So our forecast tops at 2024, assuming a 57 rate. But Airbus is saying they want to get to 75. So big, big, big number. The difference is millions and millions of dollars per year for Park. Difference between 57 and 75.

Will it happen? I don't know, but I want you to be aware of it because it's a big, big deal as far as I'm concerned. Now there's some tension with Airbus suppliers, particularly engine suppliers some tension has developed over the aggressive A320 Neo aircraft family forecasted ramp up.

There's historically been tension between aircraft and engine manufacturers about production rates based upon diverging economic drivers for the aircraft and engine makers. What does that mean? The aircraft makers make their money by selling airplanes. The engine makers make their money by servicing the engine, not by selling the engines.

So there's a tension that's existed for a long time. This is not a new thing. So here's the point. The engine makers aren't anxious for the aircraft maker to come out with the next-generation airplane because they want to keep servicing the legacy engines on the legacy airplanes.

CFM also supplies into the legacy 737 and the legacy A320 with the CF56 engine. They want to keep getting some life out of those engines. So if everybody says, wait a minute, we're going to really up our production plans for the Neo.

That means those airplanes are going to retire, and then GE loses the revenue and margins from the service of those engines because the airplanes are going to be retired. You get the dynamic? It's pretty important to understand that if you're in the commercial aerospace. Slide 20.

Then on July 29, 2021, the Airbus CEO stated that he is disappointed that some partners, many suppliers are challenging to ramp up. He further stated, we have a backlog of more than 6,000 A320 Neo family aircraft. At a rate of 40, which was the rate they were at until, I guess, this quarter.

That means 15 years of production, a rate of 60, it means 10 years. That's a long, long time. Customers do not want to wait that long. We have to go. Now this is the sic, I think it was a misquote. But that doesn't make any sense. I think he said above 60. It's pretty obvious, he said above 60, otherwise it wouldn't make any sense.

He further stated, we expect the supply chain to ramp up at a much faster pace. So here we go. We have a little potential here, as I said. The aggressive ramp up is partly based upon the success of the A321 Neo, the CEO also commented on July 29 that Airbus wants to be capable of production share of A320 Neos significantly about 50% to a share of 60%.

So you want my opinion as to what will happen is just my opinion, I can be wrong. My opinion is that if Airbus can sell these airplanes, GE or CFM will supply the engines. And why do we think that? Okay, because they share this program with Pratt.

So if CFM digs her heels in and says, well, we're not going to supply that many engines to support the airplanes that you want to produce Airbus. Airbus can say, okay, that's fine. I'll get to Pratt, maybe Pratt can sell it. In that case, what happens to CFM they don't get any revenue for servicing new engines.

So not selling the new engines on these programs. And the old airplanes, the legacy airplanes are going to be replaced anyway. But with Neos that are produced with, manufactured with Pratt engines. So lose you the way [ph]. It is my opinion, I could be wrong.

But my opinion is that there's going to be a lot of haggling back and forth at the end of the day, if Airbus could sell these airplanes, GE or Safran or CFM will support it. Airbus also recently announced resuming work on new assembly line in Tulus for an A321neo aircraft.

So maybe they're putting their money where their mouth is, not just talking about trying to move the rates up they're investing. So let's go on to Slide 21. The A321XLR, we've spoken about this for several quarters now.

So this is supposed to be in service in 2023 and is probably a big driver of the aggressive forecast of the A320neo family of aircraft. This is considered to be in the A321neo. They have over 450 orders already. Is it a game-changing aircraft? Yeah, it could be, I think, probably.

Because with this range of over 5,000 miles and the seating capacity over 225 seats. Well, it really replaces some of the widebodies on some of the shorter international flights at much lower cost. So you're going from let's say, North America to Europe, you want to get in a widebody or you get on the XLR, much lower cost for an airline with the XLR.

And they still have quite a bit of seating capacity. So let's see what happens. A key question is this single-aisle, 5,000-plus stature mile ratings, 225 seating capacity market being seated to the Airbus A321XLR. That refers to what Boeing is going to develop an airplane compete against it.

And last item is just back to the A320neo family, generally, 95 orders in August, which is not bad. Let's go on to Slide 22. These are still a GE Aviation or GE Aviation programs. In this case, again, it's a CFM program. So COMAC919. We talked about that quite a bit. Interesting dynamic here. Recent reports, U.S.

export control is a slowing progress of 919 but COMAC was immediately responded by saying, no, it didn't really those export controls didn't make that much of a difference. And they were doubling down on their certification timeline before the end of this year. They're saying they're going to have the airplane certified this year.

And that would be in China -- for China deliveries. But nevertheless, they're sticking to it. So let's see what happens. Maybe by the next conference call, we'll know what would have happened. But this is an important potential program for Park. So let's see what happens with it, but that's the dynamic there. Slide 23.

Let's go through this quickly, we can. The Global 7500 for the Passport 20 engines is ramping up. This also is planning to have our Lightstrike material certified for this airplane next year, which is a good thing. Also, those are high-margin product for us. And the COMAC ARJ21, that's a regional jet. That's ramping up as well. Last one is the 747.

We talk about this every quarter. And we have a lot of pictures of the 747. It's kind of a sentimental thing for us for reasons we've discussed probably in the past. But following an out there are going to terminate the 747 program next year. So that will be a real sad thing for us. I mean we'll have to have a vital for them.

But I also want to remind you, this is less than $2 million of revenue for us. So we emphasized a lot, but it's less than $2 million. That program is less than $2 million of revenue for us per year. Slide 25. Okay. Let's just quickly review this commercial aerospace industry in a meltdown mode -- sorry, industry meltdown and review.

Why don't we just kind of skip to the end? You can read all the different items here. We know about it. It was really Armageddon in the commercial aviation industry, commercial aircraft industry. Both almost all the news about the industry, back at the beginning of the pandemic, which is very negative.

Aviation analysts and commentaries predicted that the recovery will not come for many years or may never come rather. The end of day scenario, pretty dire stuff, pretty dire stuff that was being talked about and believe also.

Slide 26, result at the end of the day's attitudes companies in the commercial aircraft supply chain led up thousands of people. And when it's the bunker survival mode, production is slashed or even halted. Thoughts about industry recovery, how to handle it.

We're just not in the minds of many, probably most companies in the supply chain was all that survival for them since the lease was at a recovery, if any, or so far in the future was not worth thinking about. But surprise, surprise, people got tired of being locked down.

Vaccines were developed as promised and people started to want to fly it again, fly again in domestic flights. And lots of people remember, these flights were empty. So all of a sudden, people wanted to get these planes again. So it's kind of a big change. And as a result, airline companies wanted to buy airplanes again.

While at the beginning of the pandemic, airline companies just didn't want airplanes. There is so much uncertainty about what the future was. But I didn't want to buy airplanes you had a lot of airplanes. And somebody needs to produce the thousands, thousands of components, which go into these airplanes.

Airplanes that the airline companies want to buy now. Let's go on to Slide 27.

But the commercial aircraft supply chain was going very flat with it in the bunker survival mode is not in the mine had to quickly ramp back up to meet renewed demand, plus since the supply chain companies had laid off such a massive number of employees who did not have the workforce to meet the industry and ramp up anyway.

These companies try to hire back the employees they laid off what has been widely reported that has not been so easy, plus the government was paying people not go back to work. So that didn't help either.

What's the result of all of this the whipsaw effect in which the commercial aircraft industry supply chain was called flat-footed and is struggling in some cases, badly to meet the unexpected increased demands the commercial aircraft industry as it recovers. So kind of a whipsaw because they were kind of clamping down in the survival mode.

Then all of a sudden, we need to ramp back up again. And the response has been, I would say, lukewarm. This is today's commercial aircraft in use supply chain dynamic. It's a difficult one. Slide 26, but at Park, we do not bill the dongle news. We did not buy the end of phase we're in hand. Here is what we said. This is interesting.

This is what we said on May 14, 2020, this is the beginning of pandemic, the beginning of the crisis, confusion, uncertainty and fear reigns supreme. Just read this. I'm not going to read for you but go through it, quite interesting. We were not going into the bunker mode. We were in the go-forward mode. And you know what, we're pretty much alone.

I don't remember too many people that were joining the -- I don't know what you call the mission that we're on. But the last item that we got one for you, we believe the glory days of aviation were returning, we tend to be part of it. Let's go on to Slide 29.

At Park, although we do not know when we believe the commercial aircraft industry recovery would come, and we wanted to be ready for it and be a part of it. We're not giving up on the commercial aircraft industry is quite the opposite for us actually. So we made arrangements.

We talked about this before with MRAS to maintain minimum monthly baseline critical mass production levels to preserve Park's ability to ramp production we need. This is critically important. If we went below these levels, we have a real problem in our hands because we would not have the critical mass to ramp back up.

And it would be a problem for us, big one -- MRAS big one and a problem for some of those aircraft manufacturer is a big one. And even though layoff a widespread pervasive -- and we didn't really know anybody wasn't an enough people in the commercial aerospace industry. We laid off nobody.

None of our people through all the darkest and seemingly hopeless days in the commercial aerospace industry. It turns out the decision not to lay off any of our people was really important for Park. Because when we laid off people we would have -- we'd be in such bad condition in terms of trying to ramp back up. It would be very, very difficult for us.

Slide 30. So GE Aviation jet engine programs, the Park and the ones where Park's on ramping up fast. So GE Aviation jet engine programs that Park is on -- sorry, the focus on are ramping up and a ramp up of looking Steve. Just for perspective, we shared this with you last quarter, look at Q3 of 2021, $1.8 million.

Then move forward 2 quarters to Q1 2022, $7 million. That's a four times increase in two quarters, four times in the quarter. That's very, very significant for a manufacturing company. We're not into selling stuff. We have to make it. We have to get the raw material. We have to produce it. We have to test it.

We have to ship it, a very big challenge, a very big challenge. Just FYI, so fiscal year '22, Q1 and Q2 are already at pre-COVID levels, already, if you look at Q1 and Q2. And the ramp-up is still long -- has still a long way to go.

Important question, how is the commercial aerospace manufacturing supply chain responding to the steep ramp? I would maybe give it a C minus, not so great. It's an issue and challenge for us every day. Slide 31. How is Park responding to the GE Aviation program? Steep ramp up, all about our people.

I'm going try to rush even faster here because I know we're going really long. Our current headcount is 114. We're at 105 last quarter. So we're ramping up our headcount a little bit, but still a challenge. We still a number of people are looking to hire. 2 steps forward and 1 step back in terms of the hiring process.

So Park's people stepped up once again. That's what Park people do in order to get ever done in Q2. We already talked about the challenges that had to be overcome, so I won't go back over those again. Once again, thank you on this for Park's customer flexibility program. I won't go into the details.

But this program, as we talk about almost every quarter has been really critical to Park, especially as you're trying to ramp back up. Slide 32. How is Park responding to the GE Aviation program's steep ramp up continue, all better people. We can't say enough about our people, thank goodness for Park's great people.

Without them, we couldn't get a job done. Park is fortunate and blessed to have such great people and every Park person received $150 bonus for his or her dedication and outstanding work during the second quarter well-earned and deserved.

A lot of move for us, less supply chain issues, freight issues, COVID quarantine issues, logistics planning big challenge, but through dedication, loyalty and commitment we were able to meet our objectives for Q2. So Slide 33, and I'm rushing this quickly. You see the numbers, not much discussion about it.

The only thing I would say is that -- this is GE forecasting of course. It's difficult quarter-to-quarter because of the inventory practices, things can move from 1 quarter to other. It can go forward and move back that makes it more difficult.

To me, one of the big questions, though, is when will the numbers ramp up to meet the -- especially the forecasted numbers that Airbus is coming out with that we spoke about earlier in the presentation. Because we have a mismatch here. We're not operating anywhere near those levels.

So at some point, are Airbus is going to bring those numbers down or number is going to have to go up. But can't be both ways. So something is kind of have to give. Is it going to be in the fourth quarter? It's going to start in the fourth quarter? I don't know, hard to say, really hard to say.

If I had a feeling about it, I would let you know, but at this point. I'm just saying it's out there, it's kind of hanging out there that we know something has got to give. Something is going to happen. Unless Airbus says, wait a minute, we changed our mind. We're bringing our numbers back down to 55 or 57 per month. Maybe that's a different story.

But unless Airbus backs off or backs off a lot, something has got to give because we're nowhere close to operating a level to support that program. And the other programs we talked about as well that are ramping up. Slide 34. Again, the numbers are pretty straightforward. So I won't go into them in any great detail.

I'll just mention that in Q3, we expect about $400,000 of late sales. That's good. In Q4, though, we expect about $2.5 million of the critical essential component sales, which not great margins, but also about $1 million of the sales of the plated materials, which are relatively good margins. Same question.

If you want to go back and look at those factors that we talked about regarding Q2 on Slide 5, we'll do that because they apply for Q3 and Q4. Those factors haven't gone away once we keep talking about. Same question all about the GE programs, particularly Airbus. At what point is our production going to match their requirements.

At this point, it's not matching. At some point, something is going to have to have and like I said, they're going to bring their numbers down or we're going to have to move our numbers up. When that will happen? I don't know. But it's out there. It's kind of looming out there. And we're ready. We're ready to go.

Obviously, we have our challenges with our supply chain that will continue, but Park is ready to go. As I said, it's really good we did stop that expansion they're going to slow it down, very important for Park. Let's go on to Slide 35-36.

So these are the last slides, so let me go through them fairly quickly, but they're important to us, changing gears a lot here. What matters the most at Park. We're deeply saddened by what we see in here in our world today. We're told that people who work for living do not matter. We're told they're expendable.

We were told they are to be sacrificed for some loosely defined or undefined greater good. So to us, it's really tragic. But we understand we're a small company and what we say or what we believe it doesn't matter all that much about these larger issues. But what matters a lot is what we say and think about our own people.

So at Park, our people are not expendable. At Park, our people matter the most; at Park, our people are everything; at Park, our people, are our family. We do not turn them back on family. Our people are not to be forsaken. Our people are not to be sacrificed.

At Park, our people are precious; At Park, we're the most fortunate when it comes to our people. I always say it's a lot, but it's because I mean it's a lot. Let's go on to our last slide, which is 36. At Park, our people work for a living. That's what they do. At Park, our people make money for our owners. That is what they do.

It's something that our people are committed to. I'm talking about all of them. Now we made money every quarter throughout this pandemic and economic crisis. Did everybody do that? I don't think so. I think most companies in the aerospace supply chain probably did not do that.

But that was something that our people doing it wasn't easy throughout this pandemic, throughout the economic crisis. Our people did that, made money for owners every quarter. That's what they do. Not an accident, not luck. It's based upon serious commitment and dedication, serious commitment and dedication. So just wanted you to know that.

Park is a strange and unusual company, built by wonderful and special people. At Park, we're not like the others. At Park, we play for keeps. So we always feature always, at least in the last few quarters, a picture of one of our crews in this case, we're featuring 2 crews, customer service and purchasing planning teams.

Let me go from left to right; Jordan, Teresa, Jonathan, Chris, Dakota, Sara and Elena.

So these people, all the things that we've been talking about during this presentation, these people are on the front lines with all the supply chain issues, freight issues, international freight issues, juggling customer orders, quarantine initiatives, production planning and then the possible environment because normally, you want some visibility in production planning, you don't want things to change every week, every day.

But these things that kept coming up, let's say, COVID quarantine, you can't predict that. So lots of juggling, a lot of moving schedules around big job, brute force was probably the way of the quarter for these people. But this group saw to it that we met our objectives for Q2. They always on waste overcome the obstacles. So thank you very much.

Sorry to take so long as July rushing you probably made it difficult for some of you that have followed, we start going so quickly and maybe skipping over things. But operator, we're now done with our presentation. So if there are any questions, we would happy to take them..

[Operator Instructions] We have a question from Brian Glenn with Olcott Square. Your line is open..

Hi, Brian. .

Hi, Brian.

How are you doing?.

Good.

How are you?.

Good. Thank you. .

My question is -- there's two questions. So the first is -- thank you for the walk through, of course as always. The first is around the supply chain. You alluded to it a little bit. Is there a chance that you guys who are more than adequately prepared for a ramp that you're held back by the rest of the industry.

I know Airbus has several thousand or more suppliers for that program. I know not all are sole source, so there's some ability to toggle. But is that a real risk going forward that you see as potentially material? And then the second question is around -- I know you haven't put in place guidance yet or brought it back. But if we go back to pre-COVID.

I know during COVID, you guys worked on some military programs and there were some added efforts there. You talked about the Lightning Strike material through NORDEM. That's on the Passport 20 that looks like a new program that may happen or that is happening. And so commercial aside, if you think about the long term without getting into numbers.

Is there kind of a net add in terms of the programs you might be on or that you are on versus if we go back to 2019 when you had that forecast in place?.

Okay. Thanks. So let's see, the first question is supply chain and is that going to be an issue for us ramping up. I guess, as you at least implied, we are sole source on all the GE Aviation programs, including the Airbus A320 family programs.

So I think the risk of our being replaced is non-existent on the existing programs if that's what you're getting at. But there certainly is a major challenge for us. Our supply chain as we're ramping up. Plus we're also doing trials and everything else. So there's even more work there, -- So it's a major challenge.

And when will this kind of thing even out? I don't know. I mean there's a lot of reporting about it. When will the suppliers' kind of catch up and kind of get their rhythm back? I don't know, maybe toward the end of the year, that's what I hear some reporting about that. But of course, it's a case-by-case thing.

We have 3 or 4 major suppliers that we use for these GE Aviation programs. And we really need to look at each one individually. Some are doing well. Some are struggling. And I don't want to how else answer except it's just a major effort and sometimes brute force effort.

But the other side of the equation, I guess, is our people are very determined, very committed to finding ways to make things work. And we've been able to do that for the most part. So I don't know, Brian, I'm not sure if I answered your question adequately.

Is that kind of information you're interested in? Or is it something else that you're going for there?.

That was helpful. Yeah. I know you guys are sole sourced with respect to the GE program. It was just around people, even suppliers even outside of your vertical, right? They're supplying into [Indiscernible]. This is stuff totally outside of your control right. And it's a bottleneck for everybody..

Okay. I understand that question. So it's a really good one. Because let's say we got everything organized, our suppliers are okay. But if Airbus is not able to source other key components or soon to be able to make the airplanes and it affects us. I get what you're going for. Well, that's a really good question. I don't have a crystal ball on that one.

My feeling is it just my feeling is it's going to be ugly and messy for a while. My feeling is at some point, the supply chain some of these are very large companies that don't really aren’t that agile, don't move that quickly. At some point, will catch up and kind of get used to the new rhythm, the new rates and everything else.

When that will be is a good question. I don't know. But I think probably -- I'll just give you my -- it's all my speculation. My feeling is toward the end of the year, we'll start to feel that things are getting a little better, not solved, not that don't any issues.

And I'm not just talking about our supply chain, I'm talking about what you're asking about the supply chain for these airplanes, which like you said, thousands and thousands of different components are required to make these airplanes.

You're probably not surprised to hear this, but Airbus for insist they have a massive function that deals with supply chain management. And they spend a lot of time to suppliers, they try to identify where the risks are and try to focus on them. I'm sure it doesn't surprise you that that's what any good OEM would do.

So I don't know if that helps, but I don't want to as what else I can do. Now the next question, we haven't reissued our long-term forecast yet, Brian. But maybe in the third quarter, we'll try that. We're a little bit comfortable now because there's a lot of uncertainty of the things we talked about throughout the presentation.

But absolutely, yes, the programs you've been working on and developing over the last year and half since the pandemic started. Those aren't just temporary things just over factory. Those are things which we hope and expect will have long-term impacts to us.

Now in aerospace, I just want to add, you've got to do this because some of the programs you run, they're going to go away. So even they just kind of just breakeven or keep the same levels, you need to keep getting new programs. But our objective, of course, is not just to kind of maintain our levels, it's increase our levels -- our sales levels.

The Lighting Strike is a good example. That's Commercial, of course. And we hope that we also get Lightning Strike on the ARJ21. That's the COMAC regional jet. Once we get a Lightning Strike on that program, if we can, then we'll have a clean sweep of all Lightning Strike on these programs.

Lightning Strike that's actually from fairly significant revenue, but also quite good margins. That’s a product we really love selling. But then there's lots and lots of military programs. We talk about them every quarter we have a little picture. Some of them are little, some of them may not be little.

And you got to get your foot in the door, you get to start, you deal with some small content and you try to grow at the larger content. We had a picture of GBSD. GBSD is a really big deal and also SpaceX. We haven't featured those programs before, so that's good. We're getting on those programs. And we're not just going to stop.

Once we penetrate, we want to do more and more and more. For us, it's always good to get -- to do something with the customer. We want to kind of show our stuff, we can show how we service, how we respond, how we support a program.

It's much more difficult to say, look, put us on your program because we're doing all these things, it's like, well, everybody says that. But once we get a chance to actually start to work with a customer, then we can demonstrate how we feel we're different than other suppliers or meeting our competitors..

Understood, thanks. That’s very helpful.

And thank to you and your team for the efforts on behalf of the shareholders?.

Thank you. Thanks for those comments..

[Operator Instructions] Our next question comes from Brad Hathaway with Fairview. Your line is open..

Thanks for the time, and thanks for all the detail on the call. One question was, on your call, you mentioned that initially the new facility was mainly going to be kind of backup capacity, but now you're really going to need it.

Is there any way in kind of big picture numbers to think about, I guess, the total kind of revenue capacity you have when that new facility is online?.

So we talked about that before. I think we said it's about $60 million in capacity, new capacity. But remember -- you may not probably remember, at least we haven't covered this for a few quarters, I don't think. But in the factory, there is a big area, and we're talking back just is not like a little room, a huge area that set aside for another line.

It could be a hot melt line or a solution line. So if we decide we need more capacity to be very easy to drop that in. We don't have to go build a new factory. The factory is where you build the equipment has already been designed because we just bought the equipment. So it would be easy to drop in a new line there.

So it could be ramped up to much more than that at that point. So the thing I was saying, I just want to make clear is that the factor was originally agreed to with GE Aviation and MRAS as we're done in factory.

Why is that? We just talked about being sole-sourced, it could take three years to qualify a composite material supplier on these major commercial aircraft programs three years. So it's kind of a scary thought. What happens if something happen on a factory rather? I mean it's like a really scary thought of. They had this discussion with people before.

And it's kind of -- the room gets really quiet. So they asked us very understandably we'll build on the factory, which we did. If you look at the little photograph of the new factory. It's actually a separate building that is joined with a passageway for moving people and material that has a fire door on both sides.

So it's kind of the best of both worlds. We manage it as 1 factory, but it's actually two factories totally redundant. So if something happens to 1 factory or even 1 line, the other line, other factory is available. But that was the original concept. But because business has ramped up so much, and that's getting stronger and stronger.

It's no longer a matter of redundancy, which is really critical in aerospace when you're sole sourced on something. It's also a matter of capacity.

So what I'm saying is that it's really good we did what we did because we are starting now, we will wait a minute, we have a problem with capacity now we'd be in a world of hurt because it will take us three years ago -- approximately 3 years ago, build a factory, get everything designed, let's say, we're starting from the beginning.

And then we have to get the machines go through trials, you get new machines signed off on by the supplier and then qualification, which also doesn't -- even though it's only a plant qualification, not a material qualification allocation still takes a long time. So I'm thinking maybe three years' time frame.

But then we have a real problem on our hands. It would be too late, and we would not have enough capacity, I don't think. .

Got it. Great. That's helpful. And is there any more color you can give us kind of on the M&A side and kind of anything you're seeing out there? I'd love to hear more about your thoughts there..

Yeah, the M&A side. So we continue to work in this area, the strategic area that we identified. And I think we might have mentioned it, but these products or products are used to make composite structures by our customers. It's not composite materials, but other things are used -- other products that are used to make composite structures.

So that's one area we've been focused on. We probably contacted. And I mean, Matt, I don't know if you haven't done their number, a dozen or more of these companies. And we continue to reach out to other companies, and we keep trying. So that's something we feel real good about because we feel it makes so much sense for us to be in that area.

The challenge is to find the right opportunity because obviously, a lot of times you’ve contact somebody and thank you very much for not for sale. That kind of thing. So these are not auctions where some things for sale, we so bankers putting it up for sale. So it's a little more difficult from that perspective.

There are a couple of companies that we're kind of watching tracking to see how they're doing. They may be public and watching how they're doing and kind of maybe the timing isn't quite right yet. We're thinking about them.

And then there's this other area we talked about, which is more of a kind of joint investment with very big OEMs and new aircraft programs which we've had discussions. We've had beginning discussions with one of these big OEMs. We've reached out to 2 of them.

And the first discussion is in the beginning of the discussion, but it was with very high-level people. And I felt there was a serious interest in the report. They know us very well also. It's not like, who are you. So we're hopeful. We're hopeful that will be a good avenue for our investment and really great opportunity for Park's future..

That’s it. Thank you. Thanks for all the efforts. .

Sure..

There are no further questions. I'd like to turn the call back over to Brian Shore for closing remarks..

Thank you, operator. Thank you, everybody, for listening in. Sorry, I went so long. Every time we try to -- at least I try to make a little bit more compressed, but I don't -- I'm not -- have not been very successful. Have a great day. Matt and I are available. Call us any time, we'd be happy to talk to you. Okay. Good day. Thank you..

This concludes the program. You may now disconnect. Everyone, have a great day..