Good morning. My name is Paul, 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 '23 Earnings Release Conference Call and Investor Presentation. .

[Operator Instructions].

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. Welcome, everybody, to our second quarter conference call. This is Brian. With me as usual, Matt Farabaugh, our CFO. As you obviously noticed, we're trying something a little different this time. I think for as long as I could remember, like forever, we've done our investor calls at 11:00 in the morning, New York time. .

We're trying to do something -- we're trying, let's call it, experiment after the close call, which my understanding is that's actually more common. So we're trying. Do let us know what you think. We'll be noticing how many people actually are able to dial in, whether it's more or less. So let us know what you think..

The earnings release was posted, I believe, around 4:00 or 5:00 this afternoon. There is a presentation which has been posted on our website. Also in the earnings release, there is a webcast instructions as to how you could follow along with the presentation while we're going through it, which is what we're going to do today, of course, as you know. .

Let's see just checking any other introductory notes I want to share with you. There's something I got to tell you, which is that I've been under the weather a little bit, you may be able to hear in my voice.

I'm feeling just fine now, but the problem is I have a lingering cough, which is not a problem for me, but it could get a little annoying for you. So if I start to cough, please bear with me. .

Unfortunately, the thing that probably triggers the cough the most is trying to talk for an hour at a time. I may hand it over to Matt if it's getting problematical. So I just wanted you to be aware of that. I apologize in advance for any kind of annoying distractions. .

So this presentation, probably about typical for us, may be it takes about 45 minutes. Of course, after we're done with the presentation, Matt and I will be happy to answer your questions. And I think that covers in terms of the introductory remarks. So why don't we get started? Here we go. .

When we go to Slide 2, be looking for a disclaimer language. So we won't go through this, I know, but please call us if you have any questions about it. Slide 3, our table of contents, the investor presentation, supplementary financial information, which is attached in Appendix 1. .

We're not going to go through that, but please call us if you have any questions about the supplement during financial information. Let's go to Slide 4. We'll probably slow down a little bit now, unfortunately. Slide 4 is the second quarter results with the history here as well. .

Sales for the second quarter, $13.875 million. Gross margin, 29.4%. As I think you know, we really don't like it when that number is down to 30%. So we're not feeling so happy about the gross margin to be under 30%, I'm talking about. And EBITDA, $2.709 million. And the EBITDA -- adjusted EBITDA, margin percentage, 19.5%.

We don't like that under 20% pretty much either. So those percentages aren't really things we're very thrilled about. .

What did we say about Q2 during the Q1 investor call? So we had a -- sorry, that's the first [ cough ]. Sales estimate of $13.5 million to $14 million. So we came in kind of right in the middle of that range at $13.875 million, but adjusted EBITDA estimate was $3 million to $3.5 million. And we came in well under that number, $2.709 million. .

So let's talk about that. Why don't we go on to Slide 5. So let's start outstanding job by parts people to meet the Q2 sales number considering significant challenges with supply chain disruptions, freight disruptions, severe staffing shortages. I know it's broken record, but these things are not going away.

A broken record in the sense that we talked about these things a lot recently. These things are not going away. You'd have to kind of live and almost understand how difficult, almost oppressive, these things are and how -- I want to give credit to our people for making the top sales number, notwithstanding all these things. .

These 3 things together probably totaled about $750,000 of missed shipments when you combine all 3 of them. But nevertheless, we still made our top line number. So what happened to our EBITDA number considering we made the top line number, you would think we would make the EBITDA number. So let's talk about that. .

So first of all, there were 2 customer items, which had a total negative EBITDA impact of about $0.25 million, $250,000 of bankruptcy and another customer related item combined by $250,000 in the quarter. .

Let's go on to Slide 6. Significant inflation. Now inflation is not a new story, of course, but some of it we didn't fully expect or fully bake into our numbers when we gave you our forecast. Material supply costs, not new, just maybe a little bit more than we were expecting.

Freight in, freight out, both ways, freight costs, people costs, absolutely, and you name it, probably more expensive, insurance, but we can give you a list of 20 things should you want..

Now why don't we fully pass these increased costs on to our customers in Q2? It's a very good question. And because like many others, we honor our commitments in confirmed POs. At Park, honor and integrity are not relative principles and are not negotiable. At Park, honor and integrity are what matter most. .

Remember I told you, I think, last quarter that one of our suppliers was lecturing us about honoring our POs with our customers and -- what was he saying, well, everybody else is doing it, meaning not honoring POs. It's like -- Well, if you remember when you were kids, you were told that doesn't count, whatever.

It's not a good excuse for doing something that everybody else is doing it. It's kind of sad that adults are thinking this way. .

And the other thing is well, we [ run ] a business. So we haven't gone out of the business yet, and I suspect we're doing a lot better than most. So those things, I think, are good explanations or good excuses. The lag effect, so what that means is that we honor our confirmed POs.

Now when we will actually quote, then we can take into account these extra costs and pass them on if we choose to, then we can. But that might not be for 3, 4 months down the road. The difference is what -- lots of other people, they're not waiting. They're just saying fine, we are not -- can't do pricing that we have, in our confirmed PO.

Now we don't do that. So we have to wait, and that's the lag effect. And that's why we're always a little behind in terms of passing the things on. So let's go on to the next slide. .

Historically high inflation. Yes, we've talked about that, getting that genie back in the bottle. Not looking too promising. Also a lower margin product mix. You're going to ask, well, why didn't we anticipate that when you gave the forecast? Well, planning is very "interesting" in this world of supply-chain chaos. .

We do planning, but it's almost like -- whatever. It's a plan, but it never comes through because we're always juggling, always moving things around, moving something and moving things out because we're planning to produce for this week -- that the raw material won't come in. So we've got to move something else in that we have raw materials for. .

So it's kind of like brute force, a little bit chaotic, maybe sometimes more chaotic. I mean, we're good at it but it's an enormous amount of effort. But the bottom line is we don't know what we're going to be producing in a quarter. When we give you a forecast, we think this is what we're producing and shipping. .

We don't know that because there's so many uncertainties based upon especially supply chain disruptions, also workforce issues [indiscernible] would say. That's the reason why we couldn't really fully anticipate -- we didn't fully anticipate the product mix. So it's somewhat of a lower margin product mix. .

There are some stuff we wanted to ship at the end of the quarter that was higher margin. We just didn't get there. The raw materials didn't come in on time, and we just didn't -- just -- it wasn't possible to get it done. The supply chain disruptions will cause the significant inefficiencies in our manufacturing operations. .

Most manufacturing people like to have a nice plan and everything is nice and simple and quiet and calm. We'll do this tomorrow or this next week, we'll do that in 3 weeks from Tuesday. That's all nice and good. And then you could throw it all at the window and start over again. .

And we're moving stuff around a lot, all the efficiencies, manufacturing efficiencies with manufacturing people like out the window, it doesn't -- they're gone. That's what we're living with. So in our list of excuses of Park, excuses are not our thing. .

Bottom line, we did not make our EBITDA number, plain and simple. No quarterly rewards for our people. And you could say that's kind of harsh, a lot of people not to fall. But it doesn't matter. We're all in this together. And harsh it might be, but at Park, we earn what we get.

We don't earn the money, we don't get the bonus, period, end of story, whether people like it or not. .

That's our kind of way of doing things at Park. But we still thought you would want to know about some of the key things we're living with and which affected our Q2. Now we're [indiscernible] but I think you want to know. .

Let's go on to Slide 8. This is the historical fiscal year results. We've shown this for the last few quarters. Things are very interesting. We highlight '20 and '22 because obviously, you look at the 22' our sales, much lower, but the gross margin quite a bit higher. And the even EBITDA number, not the percentage, the actual number is a little higher.

So I want to flag that for you. .

Let's go on to Slide 9. This is something that we're covering now for the last few quarters. Actually one of our very good investors suggested it. And we always like getting suggestions from investors, we don't do a piece of it, we don't just do stuff to make people feel good, but something has a good idea, sure, why not. .

We don't have this [indiscernible] here kind of stuff out added to the Park, that's for sure. Anyway, so no -- zero long-term debt. $102.5 million of cash and marketable securities at the end of the quarter.

Our management -- our investment philosophy, highly secure and liquid securities, treasuries, governments, high-grade commercial paper, as an example, current average maturity of 22 months. .

And our practice has been to hold our investments until maturity. That's kind of important. We'll get back to the second. This mark-to-market reporting of our cash, we talked about last time. And I did that because I knew this was coming, that as interest rates keep going up and up and up and up, and they're moving up, that's for sure. .

So we have the -- it affects how we report our cash on an -- for GAAP purposes. Now the amortized cost base of our cash is actually quite a bit higher. It's $107.2 million.

And the theory is this that if we hold these -- the investments like cash that we invested in these items we talked about -- until they mature, which has been our practice, we're more likely to result with that higher number, approximately $107 million rather than $102.5 million. Just FYI, let's go on to Slide 10. .

So let's talk about where some money is being spent. Major expansion, we spent about $500,000 in Q2, about $0.5 million still to go. This total transition tax installment payment, we've talked about this over the year. It's a little bit complicated, nuance, but still the $12.6 million to go, $8.4 million paid to date. .

This has to do with repatriation. It's complicated. If you want a better explanation, call Matt, we don't want to take up your time to go through this explanation again. But the payment made in Q2, $1.7 million. So you see that's starting to add up.

And then also, I don't think if you noted in our balance sheet inventory build of $3.2 million compared to the beginning of the fiscal year. .

So that's really intentional. I just said we're having a really rough time with supply chain kind of pulling your hair out. So we have the opportunity to build some inventory strategically.

We're doing that on theory that we're hoping that it will kind of make things better in terms of supply chain, give us more kind of predictability, more ability to plan, more ability to meet our commitments to our customers as well. .

And of course, just one other thing that you probably know about. Every quarter, we have a $2 million -- approximately $2 million payment of cash -- regular cash dividend. So those are some of the items we're spending money on, and just FYI, if you're interested.

Cash dividend, where others cut or cancel dividends, we've maintained a regular dividend throughout the pandemic. .

We paid 37 consecutive years of uninterrupted regular cash dividends. .

And then let's go on to Slide 11. Here we go, $556 million. I always like the number involved. $556 million, it is a heck of lot of money for a company like Park. That's a lot of money, I must say. $27.15 per share since 2005. .

So remember, we got no long-term debt and you still got quite a bit of cash. We have a share repurchase authorization, we talked about this last time, announced on May 23, of 1.5 million shares that we are authorized to buy. We haven't purchased any of our shares under this authorization, not yet.

So you may not agree with this, but our feeling it's basically your job to buy our stock, not our job, our job, do everything possible and more to maximize the fundamental value of the company. .

That's how we look at it. I know a lot of people don't like that, disagree, but what now. So every now and then, the market will make us an offer we can't refuse. And that's the thing here. And will that happen? We'll see.

But the stock price is getting interesting, let me put it that way, based on any kind of metric that I think reasonable people might use. .

Like I said, you can disagree, it's not our opinion, it's not our job to buy our stock, that's yours if you want to. So [ it is all if you want to ]. It's our job to do everything within our power to maximize the fundamental value of the company. That's what we're doing 24/7, I think. .

So we do it, the last item with interest rates rising and era of cheap money and easy money come to an end, will our hard-earned honest money finally be worth something?.

Let's go on to Slide 12. Top Five, well, boring because that's same number of companies, same names as last quarter. .

So we got to keep coming up with new pictures and new programs quickly. The SM-3 missile, that is the program off latest. It's a fast one, it's fast damn missile; Mark 13, I guess, is about how fast it goes in some variant. So the A320neo, you probably think that's an MRAS reference.

It's actually GKN because GKN also supplies into the LEAP-1A Program and -- with our materials, the 737-800. That's Nordam, [ that ties to ] the Nordam, Nordam [indiscernible] WeatherMASTER Radome, and it used to be a lot of legacy, 737s as well as the MAX as I understand. Kratos, they're kind of a regular these days, and this is one of their drones.

This is the target drone. .

So let's go on to Slide 13. Not much here except first 6 months, and this is a pie chart stuff, which I kind of like but not too much shocking stuff here, I would say. But if you look at first 6 months, it seems to be falling on the pattern of the last fiscal year, more or less, with a couple of percentages here or there. Not a lot of difference.

So whatever it's worth. .

Let's go on Slide 14. Park loves Niche military aerospace programs. This is always a Elena's project to come up with a kind of cool new programs to discuss with you. These are always the biggest ones, with fine and cool stuff. GBSD, with its parts and materials. And it's actually more structures and ablatives. .

Raytheon MK 56 guided missile, ablative materials, E2-D Hawkeye, there's some parts we're producing. Probably most one is this Helmets and space suit stuff by David Clark, it's for the Orion Space Program. So in the category of cool, I think that might get the award for this quarter. .

And you see the pie chart, nothing dramatically different. I think we've talked and Radomes, Rocket Nozzles, drones usually in the niche category. We have plenty of their aircraft structure for military, which would be considered niche as well for us, Niche of course is good. .

Slide 15. So we covered this last time, but with little bit of different angle, so we'll try again to cover this topic. New world order, we certainly covered that, the sea change, defense industry based upon the war. Two major impacts, significant increase in defense budgets and spending, Europe, Asia as well as North America. We covered that. .

Deglobalization, didn't really touch on that last time. These individual countries in Europe and Asia, taking more responsibility for defense needs and spending. These countries are less willing to rely and depend predominantly on U.S., NATO, other alliances for their defense needs.

Best example is probably Poland, which is really up one ante, significantly increasing defense spending both to expand and modernize military. .

Let's go on to Slide 16. And not surprisingly, surprise-surprise, missile defense systems, including the PAC-3 Patriot missile. One of the key areas of emphasis, when people are shooting rockets at you, missiles at you, missile defense systems probably come to mind. .

As previously discussed, both Lockheed and Aerojet have recently now a significant increase in interest in orders for the PAC-3 missile system. Park supports the PAC-3 Missile Defense System, with especially ablative composite materials, and we believe are sole-sourced in those program -- that program. .

PAC-3 Missile Defense System used in Asia, Japan, South Korea, Taiwan as key parts of their defense systems. And these countries not surprisingly are in process of upgrading their systems or adding systems. It's kind of a rough world right now, unfortunately. .

I'm not happy about it. We're just supporting these programs. If it was up to us, it would be a different world. The Netherlands and Romania, they're buying PAC-3 Missile Defense Systems. In Poland -- thank you, Poland. They're ordering additional -- they already have PAC-3, but they're ordering more, Poland. .

Slide 17. Just continuing on military markets, trends. As previously discussed, Park we got to go into this because we gave that indication last time which we need to adjust.

Park received customer OEM indications regarding significant increases in ablative materials and RAYCARB C2B product requirements to support PAC-3 and other missile defense systems program. .

So last quarter, we said that we thought our ablative and RAYCARB C2B product sales would be well over $10 million in this fiscal year. However, based on recent inputs from our key customers, we believe a $6 million of the RAYCARB product which is planned -- sales was planned for Q4, that, in whole or in part, maybe pushed into next fiscal year. .

So just for perspective, we're not saying this is what will happen. If all those C2B Q4 sales are pushed into the final fiscal year, our fiscal '23 sales of ablatives and C2B product would probably be at $6 million. .

Now like I said, we're not saying that we want to give you the baseline. If you want to guess and please underline guess for me -- for us, we would guess about 1/3 of that $6 million stays in this fiscal year, maybe $2 million of those moved into next fiscal year.

So maybe $2 million of the $6 million, that remains in the fiscal year, the other $4 million maybe gets pushed. So you can do the math however you like. .

Slide 18. Big caveat, kind of do the caveat stuff here. The new world order is seemingly far from immune from a serious supply chain and inventory management challenges the Defense industry is facing as we reported that the U.S. defense industry supply chain is struggling, maybe badly to meet the significantly increased industry demands..

Okay. So now we're going to go on to commercial, Slide 19. Thanks for bearing with me here. So commercial market trends and considerations. So we discussed this many quarters now, the industry collapsed at the beginning of the pandemic and subsequent recovery, and lots of details. We're not going to go over all that again. .

But suffice it to say that the commercial aviation industry continued its strong recovery and rebound from the pandemic and economic crisis. Domestic Commercial Aviation, it continues to lead the recovery. Domestic Commercial Aviation generally serviced by single-aisle aircraft like the A320neo family.

The customer demand seems to be there to support the continuing robust recovery of Commercial Aviation. .

Let's go on to Slide 20. But -- and there's a big but here, watch items, watch and caution items. These raise concerns about the sustainability of the recovery.

What are they? The obvious ones, so broken record, the economy -- will people continue to fly if the economy falters badly?.

I lose -- my neighbor loses his job, maybe I'll take a -- won't take that really fancy vacation. I lose my job, I'm not going anywhere, you get it. Inflation, o my goodness.

Will the flying public continue to be willing to absorb these escalating ticket prices as the airlines pass on their significantly increased cost for jet fuel and other stuff like people. .

Labor shortage of pilots, mechanics, flight attendants, ticket handlers, you name it. I have a good friend who runs an airline operation. And we hear retention, because that is the first thing he talk about, I can't find people.

Will the airlines be able to provide appropriate services to the flying public or they'd be required to drastically cut back their schedules and operations?.

And the $64,000 question, if the Commercial Aviation industry does filter and airlines seek to defer, push out, cancel new aircraft orders, how will the commercial aircraft industry respond. [ That's what we're tied to the aircraft industry. ].

Maybe the answer will depend on which OEM we are talking about. If it's Boeing, I would expect them to respond differently to Airbus. Airbus may try to press their advantage even more aggressively. I'm speculating, I don't know. I'm just going to putting it out there. .

Slide 21. And of course, even if commercial -- if the commercial aviation industry remains strong, the aircraft industry still needs to deal with its own massive challenges related to what? I don't know, broken record, supply chain, labor staffing, inflation. Yes, big things that are not going away, maybe getting worse. I don't know.

You probably know more about it than I do. .

An interesting new wrinkle to complicate things for all of us is, of course, you like simplicity in our presentations. Demand for international travel is now recovering pretty nicely. That was not supposed to happen according to all these [indiscernible] and all these commentators and industry experts.

Not supposed to happen for a couple of years or maybe ever. .

Maybe international travel is dead forever. But now as a result, a number of these analysts and commentators are now predicting a resurgence for wide-body. Wide-body, longer-range international aviation operations are generally serviced by wide-body aircraft. There's a connection. .

So it's interesting timing for this predicted wide-body resurgence as Boeing will soon deliver its last 747. Airbus has canceled the A-380. Let's go on to Slide 22.

So is this an opportunity for the 777X, which is, as far as I know, the only aircraft in the mix, which has close to the range and passenger capacity profile of the 747-8, A-380, maybe?.

And also, I've got to ask this question, how much share will the A321XLR take from the smaller widebodies like B787, A330? And will the XLR be a damper on the widebody resurgence? I don't know, but something to think about. .

And last silver lining, we've discussed this before. Generally, high jet fuel prices provide airlines with extra motivation to more quickly replace the gas guzzler airplanes with more fuel-efficient modern airplanes, such as the A320neo or the -- maybe the 737 MAX. .

And there are reports of this happening that airlines are swapping out their legacy airplanes earlier than they originally planned because of the very high jet fuel prices. .

Let's go on to 23. So this is a slide that we shared with you every quarter, just kind of give you a summary. We have a firm pricing deal requirements contract through 2029 with Middle River Aerostructure Systems, they're sub of ST Engineering. .

What is this all about? All these seem like kind of Engines programs. So what's the connection? I think most of you know, Middle River -- MRAS was a sub of GE Aviation. And when we entered into this deal, they were a sub of GE Aviation. So we've all this GE Aviation legacy work through MRAS.

We built a redundant factory for them and GE Aviation, sole source for composite materials for Engine Nacelles, Thrust Reversers on these programs, which we won't tick off..

They're mostly -- what? The A321 family, Comac and Bombardier, that really sums it up. 747 Is going away as we know. Let's go to the bottom right here. This is something we did add in this quarter. Hopefully, it's not premature. Hopefully, we don't jinx ourselves as fan case containment wrap for the 9X, GE9X engines for the 777X aircraft. .

We talked about this before, but the airplane kept getting delayed and pushed out and delayed and pushed out. So we kind of cooled it on discussing it. But now it seems like maybe resurgence.

We produce the AFP composed materials for this containment wrap, as we're making a comeback, we don't know we just have to remind you also that it's possible that the containment wrap will be designed out of Safran, it is attempting to redesign the [indiscernible] to eliminate the need for the containment wrap. .

So that's -- that risk has been there for a long time, we just have to remind you of. Okay, let's go on to Slide 24. These slides are -- can be tedious, but we're doing our best here. I'm trying not to go over everything we've gone over so many times. So let's talk about update on GE Aviation's [indiscernible]program. .

So obviously, we started with the big [indiscernible]A320 aircraft family with LEAP-1A engines. And you could read what the family includes a whole bunch of different aircraft variants. So we discussed, at length, over the last several quarters anyway, Airbus' public indications about its aggressive ramp rate for these programs. .

Then the supply chain's publicly expressing skepticism and challenging Airbus about their expectations, and then the failure by certain members of supply chain to meet those expectations and the public tension which exists between Airbus and certain members of supply chain because of all of the above. .

So we're not going to go over the details of that again, just to kind of remind you this dynamic, so you have the full perspective. .

Slide 25. Let's say, suffice to say, though, that Airbus has indicated its intention to achieve A320neo aircraft family production rates of 65 aircraft a month by early '24 and 75 aircraft a month by mid-'25. .

And even though the ramp-up to these rates is admittedly aggressive, Airbus has doubled, tripled, quadrupled down on its commitment to meet these rates.

Also, this is a big one, shockingly Airbus recently indicated, I think, in the last couple of weeks or so, its intention to achieve a production rate of 50 A320neo aircraft-s per month by the end of this year. That's like now. 50 per month. So, wow, that's kind of a big deal. .

And the end of this year, what is that like? Next week? For one thing, according to the -- one thing, sorry, which according to Airbus was quite clear, there's a market and the A320neo aircraft family backlog are there to support these aggressive rates. There's almost no doubt about that. .

This is not a matter of whether they have customers to buy these airplanes. It's a matter of can they produce these airplanes and ship the airplanes and Airbus is very much pressing the supply chain to support these rates. Their current backlog for the A320neo aircraft family is 6,150 airplanes.

Now I'm not an expert at this stuff at all, but I can tell you that's a heck of a lot of airplanes that they have in backlog. .

Let's go on to Slide 26, still on the updates.

Do we think Airbus will hit these targets? 65 early '24, 75 mid-'25?.

Yes, we think they will or come close. .

Why? Because they're hellbent to get there, and they have a lot of good reasons for it. In our opinion, whatever it's worth, probably not much, supply chain should focus its energy on supporting Airbus's aggressive A320neo production targets rather than publicly challenging them. To this, we think it's kind of strange if that's being done. .

At Park, of course, we're concerned little. At Park, we staked out our ground on this controversy, June 17, 2022, news release, we announced our full and unwavering support of Airbus' plan reduction rates for the A320neo family.

For us, it's a privilege d honor for us to be able to support this Airbus A320neo program, which supposedly is going to be the biggest commercial aircraft program ever. We are all in. .

Let's go on to Slide 27. We do this every quarter. So as of the end of July, CFM LEAP-1A had 59.75% share of firm orders of the A320neo family of aircraft. The source is Aero Engine News, that's like the bible. Every month, it's like has 100 pages. It's huge amount of data.

So this is not like somebody is just kind of off the top or they had opinion stuff. .

And actually 59.75%, that's a rounded number. I think it's probably like 59.723% or something like that, a very, very detailed information, is the point. Park also recently received updated A320neo engine unit composite material usage for MRAS, why that happened? Because we look at everything very, very carefully, all the data.

Everything we hear from Airbus, everything we could possibly integrate into our little computer, and we challenge it and we question it.

Does it make sense? Does it make sense?.

And we went back to MRAS say, and say some of this information isn't looking right to us. Why is this information -- usage information are critical is because, remember this, when we supply material to MRAS or through their contractors, it's all supplied to the same spec. .

So we don't know where it's going. We don't know if the A320neo or Passport 20 or the 919, 747 -- so it's really critical for us to have this usage information. So we can say, all right, if Airbus is producing this many airplanes, and this is the LEAP market share. .

We know that -- what that will translate to in terms of revenues for Park. So anyway, we went back to them, we challenged it. And they said, "Yes, you're right." They came back with all different usage information for us. Now that's -- whether that's more accurate or probably more accurate, but whether it's totally accurate, we don't know.

We just keep looking and checking, looking and checking. .

Anyway, here we go. Assuming a 59.75% CFM market share and the updated usage data, the 75 A320neo aircraft family per month rate represents approximately $32.5 million per year of revenue to Park before rebates, starting in 2025.

Why do we focus on 2025? It is that's when we expect [indiscernible] program and also there's a built-in price increase in 2025. That's why we focus on 2025, based on our LTA. .

So we're not sure we're going to update this every quarter because the problem is this, that even if the engine usage information has not changed, the market share comes out every month and changes.

So we may be driving you crazy by saying it's up here or down there by a couple of -- by a few hundred thousand dollars every time we do this -- do a quarterly conference call. So we'll see about that. But just wanted to give you that information, so you have it. .

Slide 28. Still on updating GE Aviation. So on a short interval basis, Park's A320neo derived revenue will not reconcile to what Airbus is doing which is not going to happen. There's a whole kind of reasons for that. But this is key.

At the end of the day, the only thing which matters to Park in connection with the A320neo program is how many A320neo deal aircraft equipped with CFM LEAP-1A engines Airbus produces and delivers. .

That's it. Assume we have the usage information correct, the rest is just timing. What quarter goes into -- but at the end of the day, what matters to Park is how many of these airplanes are built and delivered with LEAP-1A engines. A little news on the XLR. We talked -- we discuss this, I think, every quarter. .

Most of this is not new, actually. First test flight June 15, certification expected next year, entry into service, 2024. So it has a lot of unique capabilities, in addition, including -- they claim -- Airbus claim 30% lower fuel burn per seat as compared to legacy airplanes, over 500 firm orders and Boeing is not planning response. .

Is this game changer? Well, I think -- a lot of people think it is because this airplane has the ability to replace certain wide-body aircraft with much less expensive operating costs on shorter wide-body missions. .

So let's go on to Slide 29. Okay. Moving on from A320, Comac 919, here's some big news. In a recent ceremony at the Beijing Central Airport attended by President Xi of China, the Comac 919 received its type certificate from the China FAA, CAAC, kind of China FAA. Comac still needs to receive production certificate. .

I don't know if you're familiar with this, but usually the first thing the OEM will get is a type certificate but they need to get a production certificate, which says every time you make one of these, it's going to be the same. That's kind of very superficial way of summarizing. But that's a kind of concept of production certificate. .

That's really critical, actually, the production certificate. So they still need to get that in order to go into volume production. They do source a lot of the key components from Western suppliers. Congratulations, Comac, for achieving this very important milestone. .

And this program is potentially a very important program for Park. Unlike the A320, the 919 at this point only uses a LEAP engine. So we're not sharing the program with somebody else from a parts perspective. .

So let's go on to Slide 30. The Bombardier Global 7500, not a lot new here. A very good program for Park. The Bombardier, I think we talked about this last time, they recently announced Global 8,000 variant with the 2025 entry into service. .

Slide 31. This is the slide, Boeing 747-8, as you know, Boeing announced it is terminating production of the Queen of the Skies. The last remaining 747 expected to be delivered this month to Atlas Air. .

I heard that, actually, one was just delivered and then one is being assembled. They're getting the last few, so that would go to Atlas Air later in this month apparently. A sad day for one of the best commercial aircraft ever built. I think Atlas Air has more of the 747-8s than anybody. .

And saying goodbye to the great 747 in Anchorage, Alaska, that's where the 747 reigned supreme. And I'm telling, you see a lot of Atlas airplane, a lot of Atlas 747 airplanes. There was all -- I shouldn't even say almost, all for freight, for cargo that are coming out of Anchorage. Lots and lots of like 747 operations in Anchorage. Long live the Queen. .

So let's go on to Slide 32, just where things get kind of complicated. So the left part of it -- left-hand column is just history. Nothing to shake you here. See Q2 $6.1 million. So it's been in that $6 million to $7 million range per quarter for a while now. Okay. Got it. .

Then look at the right side of the page, what is this about? GE Aviation programs sales forecast estimate for Q3, $4 million a quarter to $4.43 million a quarter. What the heck does that mean? And this is a good number because this is basically what's booked. We don't think we're going to get any new orders for shipment in Q3.

So this is going to be the number.

So what the heck is going on here?.

Good question. Let's go on to Slide 33. This gets a little bit, I don't know, delicate, let's say. Let's talk about what's going on here. First of all, let's talk about the programs, which we just covered. A320, 50 per month this year, 65 per month by early '24, 75 per month by '25.

When do we had to be at 50 per month to support 50 per month this year, like 6, 8, 9 months ago. .

How about 65 per month early '24? We should be ramping to that level already. 75, that's going to follow shortly thereafter. So what the heck is going on here? And 919, just got certified, that would be good news. 7,500 doing quite well. So what is going on here. .

We talked about downstream inventory and productive management challenges and dislocations. So we want to talk on out of school here. But a lot of loyal investors are very interested in the stuff, but we think we owe you some kind of explanation as to what the heck is going on here.

It's funny, with those inventory management stuff, we -- from the electronics industry and all that, electronics industries, you have no visibility. .

You're lucky -- you have no lead times. There's no visibility. There's no forecast. I mean, you're lucky to -- in some -- lot of cases with these airplanes, it's 6-, 7-, 10-year forecast. Electronics would be great and happy to have a 6-week forecast. But electronics, the industry is very effective at managing inventory and production.

We didn't have these kind of crazy wild swings. That's the idea of it. .

In Aerospace, apparently, this is kind of a common thing. It's not just related to our customers. And -- I don't know, apparently it's not getting better, a very poor track record with managing inventory and production.

So it's always overshooting, overshooting, overshooting, even though there's the long-term end-market forecast that should make it a lot more straightforward to properly plan inventory and production. .

So the explanation -- well, there's finished goods inventory. Question is, okay, how much and where? Haven't gotten a meaningful answer. So you could imagine how exasperating and frustrating this is for us. And that's what we're dealing with.

At the end of the day, only thing which matters to Park in connection with the GE Aviation Program we support, only thing that matters at the end of the day, how many LEAP-1A equipped 320 -- A320 family aircraft Airbus delivers? How many 919 and ARJ21 aircraft Comac delivers? How many global 7,500/8,000 aircraft Bombardier delivers? Period.

End the story. But, there is a big but though, the downstream inventory and production management dislocations create major challenges for Park in managing our production and supply chain. .

So the thing is, it's almost like we're our own worst enemy. There's no [indiscernible] be very flexible, very agile and responsive. I think people kind of maybe take advantage of that. At Park, they'll just turn at a dime, and we will. But our suppliers, nor sir, no ma'am. That is not true. .

So that -- it makes it much more difficult for us because maybe we can turn at a dime. Good luck with our suppliers. If we go to suppliers that's kind of crap, what they're going to do, in 2 seconds, okay, thank you, we're going to give your allocation to somebody else.

And it's time to ramp up, sorry, we can't do that because your supplier gave your allocation away. .

And you know what's happening. You know what -- sorry, you know what's going to come. I mean, it's just math. It's just math. It's only a matter of time. I don't know when we'll get that call, o boy, we overdid it, we got to ramp up fast. And this is what we deal with on a daily basis, weekly -- day basis and I'm not getting better..

So like I said, I don't want to talk out of school, but we had a lot of loyal shareholders that had been with us a long time. And I think your own good understanding, an explanation of why the heck would we be looking at that kind of number for Q3? So that's our explanation, we're sticking with it. .

Slide 34. Let's go on to the forecast for Park. So you see -- first of all, you got to Q3. Q2 actual, we stated that our Q3 forecast, nothing earthshaking here, $3.25 million -- starting at $13.25 million to $13.75 million sales. $3 million to $3.5 million adjusted EBITDA. Now we really wanted to give you a Q4 forecast at this point.

And we actually have the first draft, we actually had it. But it really -- it wouldn't have been meaningful. .

And mostly because we use 2 big variables for Q4. One is this C2B product, we discussed at Slide 17 at some length. We just don't know how much of that is going to be pushed into next fiscal year. So it really makes Q4 very up in the year. And also, the forecasting that we're receiving over the GE Aviation Program is quite suspect. .

So it would not be possible to provide you with a meaningful forecast for Q4 at this time. So we're sorry about that. Like I said, we really wanted to, but it just wouldn't be meaningful. .

Let's go to Slide 35. What we are doing with time, not so good. Sorry about that. I said 45 minutes. It's already 45 minutes. So we covered this. .

These slides are pretty much what was in the last presentation. So we'll just skim over it.

I'll start by saying, forecasting is highly problematic or probably not very meaningful in the current environment with supply-chain chaos, significant inflation, serious recessionary concerns and staffing challenges, very difficult to provide short-term or even -- and that the certainly long-term forecasting wouldn't be that meaningful..

But we go through what we think our outlook is because we think we can't provide you meaningful input on the company's outlook. Even if there is an economic recession, a lot of people say there already is, but even if there is a recession, so we're not going to go through that. Feel free to read it, ask us questions if you like. .

So let's skip over to Slide 38, where we have the kind of bottom line at the end here based upon the above considerations, although there are serious concerned about the economy inflation, workforce shortage and supply-chain chaos, we believe the outlook for Park is quite positive.

And like I said in the past 3 -- prior 3 slides, we went through why we believe that. .

Let's go on to Slide 39, a major expansion, Newton, Kansas. We can cover this pretty quickly because -- I'm not even going to read the numbers to you. I mean, there's really not much news here. Last time while many others were slashing their capital budgets, or canceling their capital budgets altogether, we push forward and completed our expansion.

Okay. .

Let's go to Slide 40, James Webb Space Telescope, this is our cool slide, fun slide. I think this is our second fun, cool slide. So a reminder, 21 of our proprietary SigmaStruts are incorporated into the James Webb. James Webb, along with those struts is established at Lagrange 2 Orbit Point, which is about 1 million miles from the Earth. .

That just kind of blows my mind. I think those struts will reduce their [indiscernible] factory in Kansas. They are 1 million miles from earth. So Donna and Elena, were in charge of this. And we have so many really cool photos, images from James Webb. And I said, okay, you girls have to choose 3. So that was hard, you should probably have to choose 100. .

These images are just so unbelievable to me, just so awesome. I don't know what -- I can't explain what they are. And Elena is our resident James Webb geek, so she could probably give you a great explanation as to what these images are about.

But I did see something interesting, an article where it said that -- the recent article indicated James Webb is seeing stuff, which is not supposed to be there. .

I thought it's very interesting. I digress for a second. Isn't that the whole point, seeing what is there rather than what's supposed to be there and that's what kind of science is all about, not -- it doesn't matter what you believe is true, science is about the truth, reality, not what you believe or what's supposed to be there. .

That's how science progresses. That's how the humankind progresses, I think. So not getting hung up on what people believe are supposed to be there. For Einstein, I mean, time and space was supposed to be absolute. Supposed to be absolute. But it doesn't matter what they're supposed to be, they're not.

Anyway, I'm digressing, like I said, but I just found that kind of very interesting, and I don't want to spend a lot more time on James Webb, and this article about seeing stuff not supposed to be there. .

Okay. Let me move on. Slide 41. So sorry about this, and a lot of you are looking forward to a really great update on the ADL. Just a reminder, our materials are currently sole sourced qualified on ADL's ADRS program for the 737 legacy aircraft. There are many thousands of 737 legacy aircraft in service around the world. You can look it up.

I think it's over 5,000. .

However, recently, ADL asked us to low key it about the ADRS program. So we're not going to provide any new updates to the program at this time, except to say we'll continue to work actively on the program opportunity. And we're also very pleased to have the opportunity to participate in this exciting potential new program.

So sorry about that again, but we want to honor ADL's request at this point. .

42 is kind of a big one. Slide 42. We've been talking about space set aside in new factory for project initiatives. So let's update major potential project initiatives in new plant. So we've been talking about this for several quarters, but we haven't told you what we have in mind. .

But now in the big reveal, we're going to tell you about one of the main projects that we have in mind. And this project relates to Automated Fiber Replacement, AFP manufacturing of aerospace composite structures. Our final decision has not been made on the project, but Park has conducted significant due diligence on the project. .

The capital investment for the equipment, including all support equipment necessary to provide complete AFP manufacturing capability to interested customers is estimated to be approximately $10 million.

Although the equipment location decisions are not -- are still being reviewed, we believe that all the equipment involved, there will be a lot, would fit in our recently completed major expansion in Newton, Kansas. .

Let's go to Slide 43. Continuing with this update in AFP. So what is AFP? AFP manufacturing utilizes robotic technology and is a form of additive manufacturing technology as compared to the subtractive manufacturing technology utilized by conventional hand layup of composite structures. That's an important point. .

Park proceeds with the investment in AFP manufacturing that should be seen as a long-term strategic investment. It would not be a quick payback investment, which would be long term, would be strategic. At this point, AFP manufacturing is generally done in-house by large aerospace OEMs, not people like Park. .

But we believe there may be a niche for us in AFP manufacturing of various space composite structures. If Park proceeds with this project, it may, at least to some degree, also, though, be a build-it-and-they-will-come type project. .

So it will take some conviction and courage to do this, but we normally aren't short of those things, I don't think. There are many potential advantages to AFP manufacturing of aerospace composite structures compared to traditional hand layup manufacturing, which is what we do now and what most companies do. .

Labor cost reductions relating to elimination of certain manual processes just don't do them with AFP. No ply cutting or manual layup. .

Now I'll go on to Slide 44. What is this not? We're not interested in automation to replace our existing people. A lot of companies talk about that. .

That's not what's going on here. But, and a big but, since it is and may continue to be indefinitely very difficult to properly staff our operations, AFP automation may be a very useful strategic approach of supplementing our existing workforce in order to facilitate expanded manufacturing activities. .

It's been a strategic, I should say, manufacturing activities, cost savings related to very high material utilization rates from AFP additive manufacturing process compared to much lower yielding material utilization rates associated with the hand layup substrative. .

Just think about it. when you do subtractive manufacturing, you're subtracting stuff, you're taking stuff out of the equation, throwing it out. So material yields with subtractive manufacturing layup could lead to significant yield loss 10%, 20%, 30%. I mean, that's huge. .

And AFP manufacturing is not because at AFP, we're not subtracting, we're only adding. So that's a big difference. Also significantly improved quality, reliability, repeatability and consistency associated with the AFP automation, process automation, which is kind of typical of automation as compared to manual operations. .

It's also potentially suited for volume manufacturing, especially of larger composite structures. .

Now the disadvantages, let's go on Slide 45. AFP manufacturing. AFP manufacturing, like most automated processes, may not be well-suited for a lower volume production, especially of awkwardly designed quirky composite structures. So quick turns, more volume, the economics may not always be there. .

Also, and this is a big thing, this is a very big barrier to entry, significant upfront investment. We told you the dollars, but the learning curve cost, it's a big, big deal. So a lot of companies say God, it is not for us.

There are still due diligence which needs to be completed, and there is no hard deadline for the final decision on the AFP project. .

We're hopeful to be in a position to make the decision in the near future, and we'll keep you posted. So this is -- we don't know if we do it or not, we may not. We thought we should share with you what we're doing, which we put a lot of time into, we don't know we will work on it. .

And potentially, though, I think it could be a pretty exciting project for Park, although, like I said, it's kind of a long-term concept rather than a quick ROI or payback. .

Let's go on 46, Slide 46. Park's people, changing gears here completely. Update on our great Customer Flex program. So you can see the numbers, percentages. .

It just wouldn't be possible to continue to get the job under the current very challenging circumstances without our Customer Flex program. That's not just hyperbole, this is a fact. I mean, every day, our Customer Flex program comes into and -- it becomes a factor for us, has an impact on our ability to get things done. .

Park's current people count, 99 people, that's not a good number. Ideal headcount, people count, would be 125. Minimum people count to properly operating a function, 115.

So what's going on here? What is going on here? There a number of factors, but one important factor, this may not be politically correct, but I'm not here to be politically correct, I'm here to tell you what we're thinking and what we believe. .

One important factor is that certain other companies, mostly larger companies, have been aggressively targeting our people for recruitment. People in Linked In, it's so easy to find them. They want people from this function and that function. .

Slide 47. So maybe this is just capitalism, the free market at work. Sure, is not that great? But is it? Some of these companies which are targeting our people, were given huge amounts of government money. Where did the money come from? From us, from the taxpayers like us during pandemic, huge bucks.

This government money, funded by us and other taxpayers, was intended to incentivize the recipients, not to lay off their people. But in some cases, recipients laid off significant numbers of people, anyway, thousands. In some cases, the recipients of the government money funded by us are still losing very big bucks. .

So you tell me, it's just capitalism and the free market at work for the government to take our hard and honestly earned money, tax money, and give it to others who have done nothing to earn it or deserve it so those others can use that money to aggressively target and recruit our people.

Is that capitalism?.

Slide 48, maybe it's crony capitalism or phony capitalism or no capitalism at all. What do you think? And one more thing about these companies who are targeting our people. What will they do as soon as the people they recruit and hire are not needed? Is it there to keep them? Well, you can come up with your own opinion about that. .

In any event, whatever the cause or the politics up of it all, we're dealing with our workforce challenges as we always do. We don't give up. We keep going. We don't sell out. We don't sell our souls. We keep coming up with new ideas. We keep working at it. But we're not looking to sell out. .

We're looking to use this challenge as an opportunity to actually upgrade our workforce and make sure we have the right kind of people working at Park. Latest idea, which seems to have some promise, is bringing on a weekend shift.

I could tell you that Courtney, Nancy and Corey as well is something we're putting -- they're putting so much effort into -- all the time, all the time, all the time, working, working and working and coming up with new ideas, meeting with prospective employees, promoting Park, promoting the Park culture, a lot of effort.

And it's worthwhile to do it right rather than to do it wrong. And that's my opinion. .

Slide 49, back to Park's people, another not so great story, inflation. Now we're not talking about Park's inflation, we're talking about the inflation that people deal with in terms of living every day.

Even though we didn't cause it and we're not in a position to stop it, it's very hard to hear people talking about choosing between buying gas and food. .

It's very hard to hear that. And this is not rocket science. Any high school economics student will tell you, if you pump trillions of dollars into an economy which is already recovering from the pandemic, then you seek to shut down the oil and gas industry. You will cause significant and persistent inflation, not transitory inflation. .

The people who cause this inflation, they're smart people, they knew what they were doing. They understood consequence of their actions. In our opinion, they just didn't give a damn. They just don't care about our people, how their actions are going to hurt our people -- are hurting our people. .

To them, our people are expendable, they don't matter. But to us, our people are not expandable. Our people matter the most, our people are precious. .

Slide 50. So we recently implemented an inflation pay premium for all of our people. We're making approximately $60,000 or less per year. .

As I say, we did not cause this brutal innovation. And we're not in a position to cover all the sins, all the damage done by this brutality, but it bothers us, it bothers us a lot to see our people suffer. So we implemented this inflation pay premium to do what we thought we could do to help our people.

And you should know, since sometimes numbers matter, that this recently implemented inflation pay premium will cost us approximately $150,000 per year going forward indefinitely. .

Let's go on to Slide 51, closing thoughts. Sorry to go on so long. It's already an hour, but we just had our closing thoughts now. So let's see if we can wrap it up. .

At Park, during -- throughout the pandemic the topic here, the theme is we earn what we get. At Park during and throughout the pandemic, we kept all of our people. We laid off nobody, where many others were getting -- were cutting their employees loose by the thousands. .

We've made money every quarter, while many others were losing money by the bucketloads. We maintained our quarterly cash dividend, while many others are slashing their cash dividends or canceling them altogether. .

We continued and completed our major plant expansion, while many others were slashing their capital budgets and spending or canceling them altogether. We maintained our outstanding balance sheet of significant cash and zero long-term debt while many others were leveraging their balance sheets, just to stay alive. .

We paid our taxes and lots of them while many others were paying none, maybe generating NOLs sort of don't pay tax in the future either. We took no government handout for corporate welfare money, although easily could have taken it, lots of it.

I was told by lots of people, Brian, what's wrong with you, it's free money, take it, go take it, you take millions of dollars, while many others were taking huge amounts of government handout money funded by taxpayers like us, when it comes from us. .

Slide 52. At Park, we earn what we get, we don't ask for or accept government handouts or corporate welfare. What do we want from the government? Not to -- I was asking, but I'll tell you anyway. Our only ask would be to stop taking our hard earned and honest and decent money, giving it to other companies which have not earned it and do not deserve it.

.

What are the keys to success in life and business? For Park, achieving great things through sacrifice and dedication. For certain others, we're not sure.

What is it? Hiring better lobbyists? Make sure you're at the front of line for government handouts and favors? What sense of value is that?.

What kind of values are those. It is a kind of sad. But at Park, we're not like the others. At Park, we play for keeps. .

So at the end of every presentation, we always feature some Park people, a crew or department. So bottom right, this is Park's solution, a mix team, a crew. We have William, looking very cool with his shades on. We've Johnny. Johnny is the -- how should I say, the guy has done this longest.

I don't want to say old-timer, but Johnny is the veteran and Daniel. Daniel is new on the team but I understand Daniel is doing very well. Great new addition to our Solution Mix group. So let me tell you something. We used to have electronics locations.

And I kind in my head, I think we had about 14 locations, which had solution mix rooms around the world. .

And every time I go visit a location, I go to the mix room. Why is that? That because that's always the dirtiest, crappiest looking room. The resin is dripping everywhere, it's caked on the floors. And then when I turn into the factories, often the management, local management, would try to steer me away from the mix room. .

Of course, that means that I would be more trying to go. I've probably been in mix rooms, hundreds -- maybe 300, 400 times over the years. I'm -- it's not an exaggeration. I have, probably, 300 or 400 times. This is by far the cleanest mix room -- solution mix room I've ever seen anywhere in my life. .

And I never asked these guys to do anything. They did this on their own. So it means so much to us, it means so much to me, that people take the initiative to create such a wonderful environment, such a beautiful mix room. And I know you probably haven't been to 300 other mix rooms, but if you had, you would know what I'm talking about. .

They didn't clean this up for this picture. This is how it looks all the time. Beautiful. As people say, get off the floor. Yes, maybe we should have a little picnic eating off the floor in the mix room. So to me, it means a lot, very special.

And thank you very much to William, Johnny and Daniel for doing such a wonderful job in terms of keeping the mix room in such a beautiful condition. Okay. Operator, that ends our presentation. And Matt and I'll be happy to take questions at this time. .

[Operator Instructions].

Our first question is from [ Brandon Deips with Huffman Prairie Holdings ]. .

I just wanted to follow up real quick on the GE Aviation Q3 guidance. Pretty decent size reduction from Q2 to Q3. And I may have missed some of your commentary.

But can you provide maybe just a little more detail? I mean, is this just the calendar shift into Q4? Do you expect to recoup kind of those missed sales in following quarters? Just hoping to get a little more detail around that reduction. .

So if you missed it, we did a pretty -- I did a lot of commentary on this point. And you probably want to go back and listen to it. I don't really want to -- I surely don't want to go over the commentary again, and I don't want to try to sum it up unfairly because there a lot of factors here. .

And somewhat it is a little bit delicate, let's put it that way. But I think what I did was I try to be as candid as possible out of respect for you and other long-term shareholders that are really interested in what's going on.

My suggestion is go back, listen to that portion of the call if you haven't, then give us a call and ask if you have any other follow-up questions about that point, if that's okay. .

Okay. Yes. Yes. That's definitely okay. We can follow up with you on that. I did have a question on the 2025 $32.5 million figure.

I'm pretty impressed by the increases you guys have noted over the last few quarters, if I go back and -- kind of back into the shipset value that implies, it's pretty decent, I think, 8% to 13% increase over the last few quarters.

Is that just pricing? Or are you able to provide any commentary on what's driving the increase in the shipset that you guys are seeing?.

Yes, that's just for the A320 also. So the -- I guess a couple of things going on here. A few. One is we have these new usage numbers. Remember, as we had a question whether the prior usage assumption was correct. Remember, we ship something, we don't know what program it's going to. .

There's all these programs, our ship are of the same spec. So the usage information is really critical to us. So the usage information change went up more square feet of material for shipset for A320. Second thing is that in '25, there is a built-in increase based upon our LTA. So that's fixed. It's part of our LTA.

And the third thing is, as I mentioned, that by 2025, we also expect that film adhesive be on A320 program. So those are 3 factors that would affect the A320 unit numbers, let's put it that way. .

[Operator Instructions].

There are no further questions at this time. I would like to turn the floor back over to Brian Shore for any closing comments. .

Thank you very much, operator. And thank you all for listening. I apologize for going so long. This is the longest we've ever done, I'm pretty sure. Also I apologize for the coughing. I can only imagine just how irritating it's listening to that. So I got through it without probably some distracting coughing noise.

So thank you for bearing -- for hanging in there and bearing with me on that little issue..

So thanks again for listening, feel free to give Matt and me a call any time if you have any follow-up questions. And have a good autumn and we'll talk to you soon. Take care. .

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