Park Aerospace Corp (PKE) 2002 Q4 法說會逐字稿

Good Day and welcome to the Fourth Quarter Fiscal Year End Result Conference Call for Park Electrochemical Corporation. Today's conference is being recorded.

At this time for the opening remarks and introduction, I would like to turn the call over to the president, Chief Executive officer. Brian Shore. Please go ahead sir.

Certainly.

Today's question and answer session will be conducted electronically. If you would like to signal to ask a question please press your star button followed by the digit 1 on your touch-tone telephone. Again, to signal for questions, it is star one on your touch-tone telephone. We will take as many questions if times permits and we will proceed in the order of the signal. We will pause just a moment to assemble our question roster.

We will take our first question from John with Needham and Company. Please go ahead sir.

Yes. Good morning.

Could you comment a bit in the Asian theater there has been some indications that some of the competitors have done very well like in Asia. Can you talk a little bit about the strength there versus maybe the strength in the US and Europe?

I really can't comment with any meaningful accuracy about competitors. I could talk about what we are doing and we are really sticking towards . There is lot of opportunity to do business in China at very well prices that I think are inconsistent with our strategy and we have priced to the type of business, you know, very well technology, high volume, standardized products, we really have very little to offer. Our Asian business rolling as I commented earlier. So we have seen improvements in our Asian business but it is the type of business that we want, kind of focus our attention on a long-term goals and not abandon our long-term goals just factory with . I mean, I think this probably a little little more optimism on Asia as compared to what say Europe or even may be North America, we were talking about, you know, really small great of differences here. As far as how we are doing in Asia. I think we are doing and should be doing our business little bit better in Asia and we are continuing to look at what digital business opportunities freshly in the high technology area. You know, we have some we are going to do that. At least, you know, how we feel we need to be in China. As I said will go after low technology, volume standardized business because that is not something we really have much to bring to the table. We are focusing on technology in China as we do in every place else.

Could you comment a bit there on the unit volumes, if you adjust further reduction week sale which was less in the quarter given the volumes and pricing of this quarter versus the previous quarter?

John, you know quality is not to comment on pricing in any kind of miracle in anyway to just find everybody that it is not our strategy for the whole market share based upon pricing. We rather play long-term we rather provide consistency toward our customers rather than having our prices go up and down commodity business and I guess that is my comment. The market share that we have achieved it is one record of time. When weighted, get market share, I guess, keep lowering your prices until some gets your purchase order and we haven't gone this way. So market share we have gained has been and it is not based upon any kind pricing strategy. I think as far as the perspective Q4 as compared to Q2 and 3, it is pretty much what I said John. If you take and cut that out, the holidays, it is probably slightly better if you want to use 4 million as the number for Q2 and Q3 and maybe as 4.3, 4.4 million. I guess for your purpose I wouldn't assume anything special regarding the pricing. Otherwise I wouldn't assume that .

If you assume the same by headcount there and cost structure, what do you think your breakeven revenue is?

Another thing we don't specifically comment on. You know, we don't want to get involved in the analysis of our cost structures and that is partly as mentioned before for reasons with for anybody who wants to call numbers over the Internet and we have noticed competitors questioning on these calls was a different globe environment. We are not going to get into that but you are a better analyst John, I think you can come up with a number probably as good as we could. The thing is that in the fourth quarter, remember that, we got a small benefit of the cost savings in the fourth quarter. In the third quarter there was still lacking in some degree. Remeber that I commented that the headcount has been about steady for last three months. That is kind of a steady state cost structure if you will and we are always looking at other opportunities and other things we can do, you know, to responsibily bring our breakeven down and of course always looking at gaining market share as well. All I could say is the numbers speak for themselves and the numbers say that we are pretty close. than we were several months ago.

Just last thing could you just probably go through the customer breakout for percentage of sales?

We still have 10 percent customers for the year was 18 percent and was 11 percent of sales to give you the top five customers, is number three, Hitachi was number four and was number five. Top five customers were about 40 percent of our total sales. That to our 20 customers have saved up about 75 percent of our sales. .

Have you seen any slow down on type of business. Can you update us on what is going on?

What is the question?

Have you seen any kind of slow down in the type of business the uncertainity associated with just what is going on with their corporate structure?

We wouldn 't comment on that. I don't think that is fair. number say were quite pretty close, the least portion that we had several months ago.

One last questions for you Brian, the gross margins there moved very sharply up over the revenue. It was there on next change, and all they was margins versus just the higher or the higher sequential revenue?

Q3 versus Q4 you mean. No I don't think there was any significant mix change. I think there was little more revenue and as I gave you the comment that the core savings that have been, you know, that were, we were putting in place or fully impactive in the fourth quarter.

Thank you. Brian.

Thank you.

We will take the next question from Michael with . Please go ahead.

I was wondering if you could give us an idea of what materials are doing better right now and what went ? What material, is it you higher end materials? I know you gave us a break out of all that? What are you seeing? What is the occurring trend in say the orders that is coming in? They focused in certain areas in the product line.

They are moving here, that I commented on the over term continuing thing. They didn't be accelerated little bit. We are probably actually losing market share and a while and it is because if customers for moving their product line to move over and move over financial products and so, actively lowering customers, we are losing market share without lower customers. It said that our customers keep moving in their product line, upstream, that means that the mix of what they are buying from the market is moving to higher and higher technology and that is nothing except and ongoing trend. That certainly does not stop with that all in the or maybe even as correlated and what happens to the lower end is that our customers generally don't want to compete in the lower end, because it will have very low offer. We certainly don't want to compete with leader. We don't have them frankly. You know I am happy to give you the phone numbers of a kind of a low-end competitors, that , you know, specialized in low technology volume of product to you know our customer system, either a date, those will be that fire and they would be that. I don't know if that helps, but clearly the trends used for high technology products, not just higher PC or higher temperature product but the or dense product that we produce. You know, they can now take in other products as well, things that we call like Dester Team following it and other products that were developing and have the price in various circulars as well. Hopefully right now, not only internal property is left.

Okay. That said you have seen any pick up in the telecom spending say for the third generation infrastructure?

No, I would just say what I know which is on that extra initiatives and remember don't supply directly to the Cisco's, Nortel's although we do work we spend so much on purchase orders and volumes would be on technology, that is where we really focus or the OEM. . My perspective is that I believe it is one of the limit where you all are having lesser refractor, maybe they are little cared better, we are not here going to be any wonder for news, but it wants everything for perspective compared to where we stayed once ago, that, I mean, they stopped ordering altogether. The telecom, OEM, I mean really stopped, I mean it wasn't zero; it was around 50 percent or 80 percent, not at zero for several months. It is almost like they see towards this, and obviously at that point they were just slotting out their inventory problems and that is not case of the more roll back, you know ordering for us, but I don't think inventory is really driving in any more. I think it is towards the end market and I mean the last week there were more experts on that, if we could do talk to the OEM. The OEM is going to talk . We have early got this and they were indications of the future. They said they don't know and they don't want to get burned by no indicating things.

Okay. Now have you seen any indications that might imply an improvement later this year, capital spending?

Yeah. Again I mean that is the preview of economist and people like that. We do not see anything hard you know which certainly not you know in terms of our own business levels we are incredibly short generally less than a week. So what booking the backlog and mechanism and those kind with current things do not give us any kind of visibility into the future and you know again what is this customers do we talk to our customers regularly at the high levels. We are going to basically give us to review. It is just this uncertainty that are getting more better, but you know our customers are not sure, is it core brand specific, is it of certain core brand, or is it some kind of general recovery just getting or something else, everybody is still, My opinion is that everybody in the world, our customer base still very tentative and I would say the OEMs were very tentative as well and I do not think anybody is.. What we say with any conviction, you know what might happen .

Okay and I believe you said earlier that John had a roughly 4.3 million weekly run rate, are you still seeing that now so we might be able to assume that for the quarter?

I am not going to on current quarter, but I could tell that we are seeing so far in this quarter a continuation of that trend. So and where I guess your guys have seven weeks of data. No. what will happen I am happily confirmed that you know the statement you made is correct. The first part the first half of the first quarter I certainly we would not give any guidance to expect that who in the second half of the first quarter. We are not big thing. We are giving numbers and one we do not know, but we certainly do know and you have it. We are was the fact and you have I think most of the companies would agree with this we do not see anything special in the second half of the first quarter.

Okay that would imply that the gross margin is likely to stay somewhere close to inline with the fourth quarter?

We are not going to comment on the gross margins as again you know I think the analyst are getting pretty good at understanding our numbers and massaging them by now, because they have a lot of and I think it is pretty quiet forward. I mean our company is what you see is what you get company, but we are not going to comment. .

Could you quantify how much holiday related in closures ?

We have about half a million dollars that we made earlier in the year

I am sorry I missed the last part of that half milion?

Yeah, about a half a million of the income that comes back into the fourth quarter for the shut down position that we make earlier in the year. We were talking about the internal accounting factors that is conservative or always we recommend the analyst that you add to half a million dollars, if you get towards the track, get to first quarter because the of the shut down accruals is the kind of get back to a normal situation, our P&L does not over the place quarter to quarter, week to week, probably we are planning a little bit about the shut down and provision because of the tension of the shut down shut down period back to a breakeven. In this period we are eluding money it actually boosted the P&L. little bit. Normally it was just, you know, it we have been making money, it will be a week or even less than your average weeks, but it would cover your fixed costs. You know, I really would not recommend the analyst that you play with because it is not very black and white, because then you would have to look at what were the expected revenue levels during this shut down period. Sometimes a little is not shut down, may be half of it is shut down, and it seems the revenue levels were much lower than what was expected at the beginning of the year. So, I am not sure that we want to tell you that there is anything in fact at all positive or negative. You know, you got some good ones talked about though, it is, you know, we did not in top line bookings and the revenues were . First the bottom line, I think it is, I personally would not recommend that to think that, we were not refusing anything else. The purpose of the provision as Murray said, is really kind of take away any of the portions in our P&L because, you know .

All right, and this last thing, could you just quickly go through the customer break out percent of sales?

You do not have percent customers, I mean, for the year what is the percent, and was 11 percent of sales due to top part of customers, is number three. Multec is part of electronics. was number four, and Goldtec was number five. Top five customers were about 40 of our total sales. yet, our top 20 customers, that's up, it accounts about 75 percent of our sales. I guess you , Gold technology is a single for company. Well, China.

Okay. Have you seen any slow down in business, given what is going on? in the uncertainty associated with just what is going on whether corporate structure or?

Bob, we would not comment on that. I do not think that is fair. You could just about that, but you know, I think that there will be uncertainty out there everybody is facing, which is the . Tyco is a very wonderful customer and we are very, very delighted to have him.

Okay. Thank you.

We will take our next question from Adam from Lehman Brothers. Please go ahead.

I am assuming you could just worth of finding high end, low end, because obviously that primary levels how you .

The purpose of the percentage that Murray the target actually has not moved because we are just using the IC standards, which is the North American Traders Association for our industry is based on a three arbitrary line of demarcation, which is a 150 degrees centigrade transition temperature at one on a thermal measurement I guess, I would form on a landed of a landing over a 150 degrees the micro is under it . Terminologist were confusing, to be honest with you, if you just send, the totaling when we talk about high performance, we are really talking about what our elegant products. This is you know, hike of our products we will be talking about, S13 or .

Okay.

One other good question, some of the recent the business grows relative to electronics business as and when, really do us a big there and I guess, what I am asking, when that When search of a business please come back, and more personally, I cannot defend even through . Well I will just give my opinion and for smaller people I need to figure this out, but I think that the major factor there it is that which falls for the was all the inventory that we just think was software which we figured it out right. My perspective is that inventory was of an issue now. I know I can have a take nonexistant but I think the real driver is the end market so I would expect that the percentage of changes in the full circuit market in the electronics equipment market to note the track more closely in the future rather than a . Of course you know our company is a high tech volt having telecom and telecom is probably getting worse you know that was the segment of the electronics, with that industry that was affected worse you it was the hardest way so w paid for being the high tech elegance segment for us. For us patterns with electronics.

During in the fashion talked about the end mark of has been 35 percent on how an , 35 percent anteversion and 10 percent would have been a consideration, running in machine and and in that small segment in the 10 segment that is growing given the out there?

I am worried when it works on a segment information. There is certainly a growth opportunities in that Asian market. The problem is that here the size of those markets are on our basis. There is a telecom, market. It looks more like even if you do get increase in those sectors very, very hard to appreciate that difference major .

We take our next question from .

Hai! Brian. I have two easy question for you. Despite heavy loss, how does this compare with the third quarter last year?

We don't have a current third quarter yet.

How about that one seen at the five central ?

Third quarter 2002 we had a loss of 20 cents per share, from 22 to 5 cents.

I have question, is anything happening around the litigations of the telecom add and what the timetable might be?

What the PO level and I believe there was a hearing that was scheduled on what you would call pre that was profound, I think it was first step in around now and that would have been I think understanding as one in the but I could that was postponed that I know hearing has been in schedules yet. It is not to my knowledge. We are hoping that this thing will last about you know I don't have any strong feeling about when that thing would conclude.

Okay the next question Don with Buckingham . Please go ahead.

On the top side customers the existance and I guess and wonder and in that outside I have rided in the share is still the thing with them and their businesses just on the performance of that competitors and the segments that you serve but you can ?

It is the matter of couple of records on the numbers sharps in field one. was principally in UK. They don't want to own those jobs and that will be the reason STP is still, you know, a very active customer and these things are dangerous because you know there is no real change in our relationship with STP. You know, it is a hi-tech European beer company that use to be of have better customers in Europe. I would conclude anything special .

Secondly, a lot of the OEMs loss. I don't cutting developing cost. Have you seen any change in design in activity over the past quarter?

Well, the activity that still varies. I think, I can't really but I would assume is that this is the OEMs or booking to the new product lines is a kind of because that itself and in any event, like I will tell you, from our perspective new design activity and prototype activity what everybody is waiting for frankly is program volume and what we have seen is just a lot of tentativeness about releasing this programs to volume. When they are released to volume, the volumes much smaller . I think everybody is still very apprehensive tentative nervous. Everybody wants to take one step a time after a long goal people are initially buried with billion of dollars of inventory write offs, everything like that. So we are also that is a good thing because other side very tentative about making for the future.

Will go next to Allwyn with Megfield . Please go ahead.

Morning. Would you comment on how big a market the material would be?

That market is less well defined in a way than our market for other product lines. It is much much more number and which is our best guess. Globally at this point, we are talking about, on every million dollar. I know it is a wide range but it is very hard to nail that down particularly overseas and particularly in Asia.

Fiber , anything significant in volume there?

Volumes have been about steady with fiber . You know the historical patterns of 10 to 15 million dollars are going to continue.

Thank you.

We will take a return question from Nathan with .

No. The lead times are very very tight. We were living in a world. As a matter of fact, I think that some cases our are being very quick turn oriented us as supplier and their responses has really helped us gain business. I mean, it is a tough link for us, we don't want to get this on price but the question is we have to get our to be able to demonstrate our capability and demonstrate that we can perform. Sometimes able to raise that are passing on. But the answer to your question is that any

Did you mention what the operating cash flow was for the fourth quarter?

No I did'nt that is operating cash flow. Fourth quarter we probably generated 2 million dollars and positive cash flow. In these very worse time our cash was down about 3 million dollars. We had about 3.5 million dollars of capital expenditure, million dollars .

Ok last thing tax-rate assumption of fiscal 2003 is still 30 percent?

Yes the mix is some where so far we are still looking the whole of the 30 percent rate for now.

Ok thanks again.

And once again that's star one for questions. We will turn to John McManus with Needham and company.

Yes could you talk a little bit about your at China, give some idea of when will actually have production there and you know what is like being doing business there in China and what do you discover there as far as doing business there which its difference and then through the Singaporean operation?

Well I will tell you my prospective on this is that China is a pretty hot topic in our company. We thought we knew China but we didn't know China. In fact in Asia, operating in Asia since what the mid-eighties Chinese customers probably long and out so China is lot more in customs in China as well. But everything we thought is not exactly true there is so many surprises, so many thinks we where in. It is a challenge for western oriented people because we like black and white. at least we know what they are and we have to do it Private regulation that was. That is not exactly no option in China and it seems like you everyday we are learning some thing else and that is what makes it exacting and interesting is that dynamic and we have some persons in China now. We have number of people come from place to all time in China living in China and it is really becoming exciting learning experience that is for sure. One thing that I do feel good about those I think our strategy has been correct. I think lot of number of companies they get all worked up about China they get all excited they don't know what to do about it so let us a look spent 40 million dollar plant whatever 50 million dollar in our industry any industry so that we can solve the Chinese problem and that doesn't really solve anything it is very traditional problem. The hard work has to be done you know the same word and that is what we are doing it now we are learning the market we are learning ways to do business. We are learning who are the customers when much more internally that we knew what you are doing what you are objectives are what the plans are what the capital structures are you know what kind of equipments they have what kind of technology they want to run. What there expectations be how about serve them what they want what they don't want. I mean what you could say is that we want to sure is China is very important know and we will be more increasingly important in future. But for us we want to do it right just for a building a facility in China, natural manufacturing facility. I think it is likelihood that will happen in the future, I don't know when, I don't know where, I don't know what, I don't know how. That is we are learning filling in the blanks.

and then the fact, you can have a better expect the role we need to do, I don't feel we are behind it at all. I really wish that we were further ahead than we are. I think we just got where we want to be. And the biggest thing is so much is developing and merging things. We are ceratinly are focusing more on the technology and lot less on the low technology, high volume standard and that probably if and when we do with a facility, our facility in China would be the focus of those facilities, but every day we want to something

Is the market for especially for the higher performance material as large as you thought it was?

Well actually in my opinion, we do live in a very different culture and the thing is that Americans don't think about the sort of life in China and vice versa. There is a lot of talk about high technology in China and a lot of desire to move up technology in China, but there is one thing that I think that relates, it is really just happening now and there is a wide gap in my opinion between what people say they can do and what they can do in some cases and may be lets be open about these things because of the cultural considerations. So that is why people spend a lot of time and build a relationship and get to know the people and get comfortable with them so we can figure out with a little more time. I think everybody is clear that the Chinese industry John is certainly have the desire to move up in technology and will do that and that is something that is multiperspective in my opinion.

Last question Brian, you know you have put a lot of money in the capital expenditures there. Is this spell behind you now, could you give us some range of what you may spend in capex?

The answer to your first question is yes, it is behind us. Everything has been installed and now we are speaking on line with some of the equipments and really mostly everything is on line as most of us find doing upgrading that will be a process and that will go on for years. We haven't finalized capital spending budget for the year, but my guess is and you know what we are looking for about ending, I am going to guess what the of 15 million or 20 million in spending, low 10 to 20 million. That is our spending. That is not the capital that is approved because that will carry over to the following year, but some less stock is spending on the French that is going to installed now. I guess may be I will go back to the question. When you asked the question I was thinking about the North American expansion plan. The French Treater was the big investment as well. It is still in the process of being installed and that money is principally going to be spent this year, you know it was approved in the prior year. The period we are going in through now is what is called a period. We have so much new equipment in silicon technology and the focus now is to really bring it up and upgrade it and refine it. And make sure it is the best possible technology that could be. So we get the value out of the investment that we have made.

Thank you.

And Mr. Shore there appears to be no further question. Therefore I would like to turn back the call to you for any additional comments.

Okay thank you operator and thank you everybody for listening in today. It has been very nice talking with you and listening to comments as well. We will be back in touch I guess sometime in June with our first quarter results, obviously between now and then if you have any other questions or any comments I will talk with you and have a good day.

And ladies and gentlemen, this does conclude our conference today. We thank you for your participation. You may disconnect at this time.