Park Aerospace Corp (PKE) 2021 Q4 法說會逐字稿

Good morning. My name is Justin, and I'll be the conference operator today. At this time, I would like to welcome everyone to Park Aerospace Corp. Fourth Quarter Fiscal Year '21 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 call.

Thank you very much, operator. Welcome, everybody, to Park's fourth quarter conference call. I have with me, as usual, of course, Matt Farabaugh, our CFO. We announced -- published our earnings release earlier this morning. So if you haven't checked it out, you want to do that. In the earnings release, there are instructions as to how to, I guess, access the presentation. We're about to go through a presentation. You also can find on our website, but you really want to get that presentation in front of you in order to make this call more meaningful. Without the presentation in front of you, it might be a little confusing.

Also, there's a supplemental financial information that's attached as Appendix 1 to the presentation. Matt used to read that for us, but these presentations are going on for so long that we don't do that anymore, but feel free to access it, ask any questions you like about it.

We mention this every now and then, probably almost every call actually, that we're not able to cover everything. These presentations are feeling lengthy as is. We need to kind of select what we think would be of interest to you and helpful to you in understanding our company. We do the best we can with that. And then next call, maybe we'll cover something else. The call could go on for 45 minutes.

So you see we really can't -- it's not possible to cover everything. We'll try to keep the 45 minutes. When I said the call, I mean the presentation, and we'll have as much time as you want for questions and answers.

When we're done with the presentation, then we'll turn it back over to you and you can ask any questions you want, either about the presentation or anything about Park generally that's not in the presentation.

Okay. So why don't we just go ahead and get started. On -- when we turn to Slide 2. This is our forward-looking disclaimer language. Any questions about this, just let us know.

Slide 3. We will take a little bit longer on Slide 3 than Slide 2. Slide 3, there's a lot of stuff going on here, very busy. So why don't we take a look -- start by taking a look at the top line for the quarters of the -- '21 fiscal year 1, 2, 3 and 4. You can obviously see what's going on based upon the significant downturn in commercial aerospace, and also we talk about destocking at some point come back a little bit in Q4.

But I want to remind you right now, right when we start, about something we've discussed, I think, last quarter or maybe in a prior quarter and that relates to this essential component for rockets, for missile systems. This is our ablative product line. So remember how it works. There's an essential component that's sourced overseas. We have the relationship with the supplier. So the OEMs are concerned about this. These are critical missile programs. They ask us to buy that component and then sell it to them, just to have a safe stockpile of that component.

So it's an essential component. The product couldn't be made without it. So we do that. We buy this component. We sell it back to the -- I shouldn't say back. We sell it to the OEMs or to the customer. They never owned it to begin with. And it's their product and they can do with it what they want, I guess, but the expectation is that we will use that component to produce the ablative materials -- the composite ablative materials for these rocket and missile programs.

This is significant for a couple of reasons. It affects our top line and also our bottom line. We sell it at a small markup, so the margins are quite small. The mutual content for these sales are quite high. So I just want you to remember -- remind you that for background in Q2 -- sorry, in Q3, we had approximately $2 million of those sales of the component and in Q4, we had $3.5 million of sales. And we predicted that. I think we did our Q3 call, so it shouldn't be a surprise to you. But I just want to remind you of that because it does kind of affect the numbers.

So let's go through Q4, the current quarter, fiscal '21 Q4, $14,441,000 of sales. You can see the numbers moving up. But in that number's $3.5 million of sales of that critical component with real low margins, gross profit $4,326,000. Gross margin 30%, which is -- we like that. We don't like -- well, let me put it differently. We don't like it when it's below 30%. We're actually surprised about this because with that critical component, that essential component, the margins are quite low. So we're surprised that the gross margins actually came in at exactly 30% actually. That's not a forced number. We don't do that. That's just the math. It came in 30.0%, and the adjusted EBITDA of $3,257,000. So we're a little bit surprised about that. Let me remind you about our forecast philosophy before we go into the -- more discussion about the numbers. So we give you a forecast, we're telling you what we think is going to happen based upon working very hard and everything we need to do to make it happen. But we're telling you what we think is going to happen. We don't give you a low number to beat it. We think that's kind of silly. We know lots of other companies do that. The largest are all alike. We think it's kind of this -- I don't know, not wasting your time to do that. If we tell you something, we're telling you what we think is going to happen. We can be wrong, but we're telling you what we think is going to happen.

So all right. So let's -- with that in mind, let's talk about what did happen in Q4. What did we say about Q4 during our Q3 conference call? We said the sales estimate was $14 million to $14.5 million. Well, we came in within that range, okay, maybe to the higher end, but still within that range, no problem. We also said the adjusted EBITDA estimate was $2.3 million, $2.8 million. Well, we came in at the $3.257 million. So quite a bit above the top of the range. That's not what we thought was going to happen. And what happened was that we did not properly capture in our estimate for Q4 the margins on ablative products.

Now I'm not talking about the essential component. These are our sales of ablative materials for rockets and missile programs. Very good margin, and we just didn't fully capture those margins. That's on us. This is not something we did to give you a low number. We could be hero. We don't -- as I said, we just don't do that, not our way of doing things.

Let me see, anything else to cover on the numbers? No, I don't think so. But there's another big item I kind of deal with on this page, this page as it flows down. Special items, okay, you see at the bottom, the Q4 special items. Well, there was a big special item in Q4, $1,570,000, that related to something we call -- used to call it a Pioneer Plant, which is a plant in Singapore we opened in 2008. This is a composite material plant. This is just around time we're going into aerospace. This plant was going to be our Asian aerospace for composite materials facility, but it was part of our Singapore company, our Singapore entity, our Singapore operation.

In electronics, our Singapore facility was our largest facility. So it was part of that. It wasn't a separate entity. And the key thing was it was going to be operated and managed by our Singapore team, which is the electronics group at the time. I wouldn't say it was very successful in terms of marketing. We never got very much -- we didn't get very much sales. But nevertheless, for whatever reason, that it was not -- I would not say it was a great success, okay?

But then, as you know, we sold our electronics business in its entirety to ACG (sic) [AGC] in December of 2018 and that included the Singapore operation, of course, the Singapore entity.

Now this Pioneer Plant, as I said, it wasn't a separate entity. It was part of the Singapore entity. But we separated it and dropped it into -- and into another entity owned by Park. Why is that? Because AGC did not want to buy the Pioneer Plant. They didn't want it.

So we said, okay, fine, we'll keep it. And we have kept it. We had a mothball almost right away. I think almost right away when we did the sale in 2018 because we didn't have -- without AGC, we didn't have our Singapore people. We didn't have the ability to operate this plant anymore. So we mothballed it. We didn't write it off right away because we had some hopes that we could be able -- we might be able to use it at some point. And why is that? Remember, we've been talking about working on an Asian JV for a while. I don't think we discussed it every quarter. We've been talking about it for a while. And actually, we're still in discussions with an Asian -- large Asian aerospace company about doing a JV in Asia, and our thought is that, well, maybe this plant would be used in that JV.

These discussions are high level, at the executive level of this company. I would say they're serious. But also they're still preliminary. And COVID has not been our friend because we really need to get together. We've had a lot of phone discussions, correspondence back and forth, questions and answers. But to me, in order for this to get to the next level, this discussion, we need to get together. And really, their team needs to come to Kansas and spend a couple of days with us.

And with the COVID travel restrictions, that just has not been possible. They have not been able to do it. So it really sidetracked this whole thing. We're still in active discussions. I mean I don't want to tell you that -- I'm not telling you it's dormant at all. We're still in active discussions. I mean like probably on a weekly basis, e-mails or phone calls, that kind of thing. But I feel like until we're able to get together, it's kind of not going to get to the next level.

So why did we decide to write-off this time? Because this thing has been going on for a while. And even if we do a JV, it's not clear that we'd use this facility in a JV. So we decided to write-down the assets at this time, and I think that's the right decision. I think it was the right prudent and thoughtful decision. Just in case you're interested, not much of an impact, if you know why, the pretax benefit, now that we've written off the facilities by $200,000 per year positive and the EBITDA benefit is only about $80,000 because some of the cost of depreciation. So just wanted you to be aware of that because I think in the news release, there is kind of a reference to this write-down, but I wanted you to know the background. It just kind of wasn't -- I mean we didn't have the ability to continue to operate this plant after we sold electronics to AGC which we just didn't have -- there's nobody to operate it for us. So maybe decision was kind of inevitable, but we made it. And I think it was the right decision and the right time.

Why don't we go on to Slide 4, just a little more history here with our 2021 results. You can see the top line, kind of nice growth '17, '18, '19, '20 and oops '21. But of course, no news flash here. That's the effects of the commercial aircraft industry downturn and that destocking we talk about sometimes.

Okay. Why don't we move onto Slide 5, our top 5 customers. This is something we do want on almost -- I think every presentation, actually. It's almost kind of a fun thing sometimes and we have a little picture for each customer. AAE Aerospace, that's the MK125 picture in the bottom left, and we supply material to this program for actually structural components, just not the rocket, really the structural components of the warhead.

Let's see, CPI Radant. That's next one. That's the over on the top right the -- and the NMT, Navy Multiband Terminal, and we supply (inaudible) materials into that program. Kratos, we talked about Kratos quite a bit. Picture in the bottom middle of the Valkyrie.

I think we've told you that we're the main material supplier -- composite material supplier to Kratos for all their drone programs, and this is a picture of Kratos launching what they call a baby drone. Interesting. That's a drone launching a drone. So how about that? I think Kratos, actually, said they expect the first production delivery of the Valkyrie in a couple of months. I think that was their terminology.

Middle River Aircraft, that's the company that was owned by -- part of GE Aviation. Now it's part of ST Engineering Aerospace. You know about them. And we have a picture of the 747-8 on the top left. And Turkish Aerospace, not often in our top 5. It's really nice to have them. They are a contractor for Sikorsky aerospace. We have a picture of a Sikorsky helicopter on the bottom right, and we provide materials for -- the structures for the Sikorsky helicopters.

Okay. Why don't we go on to Slide 6. These pie charts I find very interesting. Let's look at military and in 2020, why don't you just do the math, $60 million in total revenues, 35%, it's about $21 million. Now, you got fiscal '21, where the total revenue was a lot less, $46.3 million, about 59% military and obviously the military percentage has grown quite a bit, but actually, the absolute number, it's about $27.25 million. So it grew from '20 to '21, which is nice. Remember, we decided about a year ago to focus on military. I'm not saying we're happy with the results completely. We need to do better. But at least we've achieved some results. And just remember also that the $27.25 million includes quite a bit of that sale of the -- what we call, the essential component for ablatives for rocket programs. So just keep that in mind.

Look at the commercial aerospace portion of the pie, was $28 million, apparently, it looks like in fiscal '20 and $16 million in '21. Just doing the math, that's all. So obviously, quite a bit of a downturn in commercial aerospace.

Why don't we go on to Slide 7. This is our fun slide, and (inaudible) kind of do this every quarter. They put together -- we try to come up with things that are fun and interesting. This sometimes isn't necessarily our biggest programs, but we thought we want to make this a little bit entertaining for you, so we try to come up with some cool programs, military programs. Top left, there's a B-1B, but it's not the B-1B program, it's the LRASM, the long-range anti-ship missile that's being launched by the B-1B. And so we produce parts using Park materials for that program. Avio Aster 30 Air Defense Missile, those are rocket nozzle material, ablative materials, that go into that program. The F-15 Eagle, 104 to Zero, if you know what that means. They have 104 -- this is in combat: 104 wins, 0 losses. So it's not even fair. We produce materials for the radomes for the F-15. And we have the JSTARS parts for cover assembly using Park materials. And we have the pie chart here. Kind of interesting to see rocket nozzles are big, structures are big, drones are big. Radomes are not as big, but it's still a really important segment for us.

Okay. Why don't we keep going? I got a lot to cover here, Slide 8. Okay. So we talked about we love our military programs. So just in fairness, we need to also say we love our commercial aircraft programs. We've got to give equal time to commercial. So we've covered this. This is kind of a review slide. So you know the story, if you've been listening to our calls. Single aisle versus wide-body. A clear trend for single aisle. It was actually before the pandemic. It was because people want to fly direct rather than go into the hub-and-spoke system. But now it's even more so because the domestic aviation has recovered -- is recovering, has recovered to some extent, international travel probably ways off. Domestic, take a single-aisle for domestic. For international, think of wide-body.

So our view, if you want to be in commercial aircraft, at least now you want to be in single aisle. There are 3 major single-aisle programs. We're in 2 of the 3. We think those are the 2 you want to be on. No offense to the MAX. We wish it well. Hopefully, will do really well in the future. But we're happy -- very happy to be on the A320neo program and also the COMAC919 program.

So we think we check 2 out of the 3 boxes, and we say, if you want to be in single aisle, which we do, those are 2 boxes we want to check, but that's our opinion.

And we think we're ideally positioned, partly by luck, in the commercial aircraft industry. I think we're kind of being nice to ourselves by saying partly by luck, I would say, mostly by luck, that we're just very well positioned.

So Slide 9. Commercial aviation emerging from the abyss, and it certainly was an abyss. Higher jet fuel prices and environmental concerns provide extra motivation for airlines to move -- to more quickly replace the less fuel efficient legacy aircraft with more fuel efficient modern aircraft, such as the A320 family. A year ago, fuel prices were down and we're saying that's kind of an impediment for the new aircraft, a new more fuel-efficient aircraft. And now fuel prices are not so good. They're very high and it's a little concerning.

The environmental concerns are in place whether fuel prices are high or low, but the fuel prices -- the higher fuel prices provide extra economic incentive for the airlines to go to the more efficient -- fuel efficient aircraft, of course.

China domestic aviation. Domestic has recovered to pre-COVID levels, even greater depending on who you ask. That's very positive for single aisle.

U.S. domestic aviation recovered a lot, like 75% of pre-COVID levels, expecting a full recovery 2022. Very positive for single aisle.

And just kind of an interesting little anecdote, there are 2 -- I don't know if you saw this, 2 new U.S. domestic airlines that recently announced they're launching. They don't plan to buy -- from what they say, don't plan to buy airplanes from programs Park is on, but still a very good sign of optimism about the U.S. domestic aviation market. Very good news for single aisle. I think a year ago people would have said, "this is just not possible. Nobody is going to start an airline in the U.S., maybe ever." But that was the pessimism at the time.

Let's go onto Slide 10. This is also a review slide. We provide the slide pretty much every quarter. I think the first item, we had the LTA started in 2019 through 2029, it's a requirements contract. Middle River Aircraft Aerostructure Systems, MRAS. That's a subsidiary of ST Engineering Aerospace. So what's the GE connection? Why do we talk about GE Aviation? Why are all these programs GE Aviation programs? Because Middle River -- MRAS was a subsidiary of GE Aviation till about, I think, 2 years ago. It was sold to ST Engineering Aerospace. So the GE Aviation legacy programs, the program -- GE Aviation programs used MRAS which was part of GE Aviation for all the nacelle structures and thrust reverser structures. So that's the connection there.

We've done the factory. We'll talk about that a little later. It's just about done. But when we signed up that LTA with MRAS, we said, "okay, well, we'll go ahead." Now we'll build out a redundant factory. Why are we doing that? Well, next item. Sole source for composite materials for engine nacelles and thrust reversers for multiple MRAS programs, the whole A320neo family of airplanes with those LEAP-1A engines. That's a first 5 items. The Boeing 747-8; the COMAC919; COMAC ARJ-21, which is the regional jet for China; and the Bombardier Global 7500. It takes a long, long, long, long time to qualify a material -- composite material supplier. So you see the problem here is that if something happened to our one plant, it's actually a major crisis almost immediately for all these aircraft programs. So it was very proper and understandable that they asked us to build a redundant factory as part of our long -- part of our signing of LTA, and we did that. It was actually, I think, a handshake, but we are people of our word, whether it's right or not.

Top right, I just quickly, there's also a component we produce for those Passport 20 engines. That's not part of the MRAS LTA. That's actually through GE Aviation still, and we supply one of their contractors. A picture of the legendary Boeing 747-8 nacelles. I love this picture because it gives you a perspective on -- these nacelles are huge. I mean look at the guy in the background there. And these nacelles are all Park materials, not only the nacelles but thrust reverser structures and for Boeing some internal fixed structures as well, for the 747, I should say.

Let's go on to Slide 11. How we're doing time, pushing you ahead here. Okay. So let's do an update on the specific GE Aviation program. So the A320neo family -- by the way, we added the A319neo. That's part of the family. Not talked about that much, but there are some sales. So that's part of the family, and that uses the LEAP-1A engines, meaning when they use those LEAP-1A engines, it's our program. Definitely in the ramp mode, I would say. Airbus -- just some information, Airbus delivered 57 neo family aircraft in March. Airbus -- this is from Airbus. This is not industry gossip or analyst opinions and that kind of stuff. Airbus plans to increase the A320 family of aircraft production rate from 40, which it currently is at per month, to 43 per month in Q3, 45 per month in Q4. And just if you want to do some math, I don't know if you -- I like doing this, remember that the A320neo family of aircraft, they have 2 engines. One is a LEAP-1A engine, and that's the program we're on, they also have a Pratt engine.

Now each airplane has 2 engines, so you got to remember that when you're doing your math. Just FYI, I'm not telling you what's going to happen in the future because I don't know. But if you look at the May edition of Aero Engine News, it says that the LEAP-1A, which is CFM, CFM is a joint venture between GE and Safran. LEAP-1A engines, that's about 61% market share of all of the firm orders for engines for an A320neo family of aircraft, okay? So if you like doing math, that's the current situation. I'm not saying it will happen in the future because we don't know that. But it's about 61% of the market share. So 2 engines with 61%. Think about it that way.

Let's keep going. This is really pretty important. During Airbus' Q1 investor call on April 29, '21, the Airbus CEO -- I'm not going to pronounce his -- even try his first name, but I think it's Mr. Faury, and I have a problem pronouncing that name correctly, sorry about that, I got a lot of French friends, stated that there will be a steep ramp up -- this is a, "a steep ramp-up in 2022 and 2023 for the single-aisle aircraft." That means the A320neo family of aircraft, steep ramp-up, that's his quote, for '22 and '23. He also commented during the call that Airbus has provided scenarios for their supply chain to determine the fastest possible ramp-up of single-aisle aircraft production the supply chain can reasonably support.

You get what's going on here? So from my perspective, these guys are very optimistic. They're trying to push up the rate as much as possible, the A320neo, and now they're trying to figure out what the supply chain can support. A really important thing to understand.

Okay. So that's the A320neo story, except on Slide 12 a little more, still the A320neo family. A320XLR news, this is part of that family, using the LEAP-1A engine. First test flight nearing -- aircraft -- first test aircraft, sorry, nearing final assembly. First flight expected in 2022. Certification entering into service in 2023. I mean that's kind of round the corner. And aircraft timeframes -- electronics in the old days that would be forever. 2 years in the aircraft is like tomorrow. Now many expect this airplane to be a game changer, a very significant range. It holds a lot of people and the theory is it will replace wide-bodies for many missions, at least some missions. And the key thing is Boeing does not have an answer for this aircraft. Boeing is reportedly considering the 5x, which would be an answer to the XLR.

In my opinion, they really need to do it because they don't have an answer for it. But the problem, I guess, for Boeing a little bit is this XLR is going to be in production and being sold in 2 years. And Boeing hasn't even announced this 5x yet. So I have no idea what time frame they'll be talking about, but it's going to be into the future.

With kind of a new airplane category, I mean, I think the general rule, it's always good to be first, maybe not always, but usually good to be first.

Let's go on to -- anyway, so just on -- still on 12, I think this could be a really important program for Park, the XLR part of the A320 family, but real important program for Park.

Let's go to Slide 13, the Global 7500. I think they recently sold their 50th unit. This airplane is in production and doing well, in the ramp mode, ramping up, which is really good news for us. Comac ARJ21, this is a Chinese airplane made by Comac. It's a regional jet. It's in production, mostly for the China market for now. They're ramping up. It's in production, ramping up.

Slide 14, Comac919 with the LEAP-1C engines, so Comac has indicated they intend to certify and begin deliveries of this aircraft before the end of 2021. That's this year. So I guess we'll see what happens. I don't know whether it's correct or not. I haven't heard any updates on that. But whether it's '21 or some other date after that, this is, I think, a very big potential program for Park.

This is Airbus' attempt to be a real player in commercial aerospace. This is their answer to the 737 MAX and A320. This is their single-aisle airplane, and you can see a picture right here. So I suspect it's going to be big. I suspect originally it's going to sell inside China. Remember, domestic aviation, single aisle.

But eventually, I believe they'd like to sell this outside of China. Boeing 747-8, Boeing announced it will terminate production of the Queen of the Skies in 2022, 12 orders left to fill. Long live the Queen. As some of you know, I have a real fondness for the 747-8.

One of the things that makes it a real sentimental thing for us is the first program we've been on with GE Aviation was the 747-8. Our first shipment for this program was February 28, 2014, at about 11:00 at night. It was kind of a pretty exciting day for Park actually. So -- and we have a special fondness for the 747. I personally -- I took this picture actually at the Anchorage airport. This airplane you see the gears down about to land.

Slide 15. So commercial aerospace year in review, Armageddon revisited. So you know all about all this stuff, airplanes, Park by the thousands. Donna did a real nice job with these pictures. Airline terminals were ghost towns. If you weren't there, you heard about it, airplanes flying almost empty. We've seen lots of pictures of like 2 people on an airplane. Thousands of flights canceled. Thousands and thousands employees were laid off throughout the commercial aircraft and commercial aviation industries. That's Armageddon. Almost all news about commercial aircraft industry was negative, very negative. Just again as the analyst and the commentators and the people get interviewed on TV that I guess a lot of people listened to. And it was maybe not a good thing because that kind of becomes a self-fulfilling prophecy. Aviation analysts and commentators predicted full recovery will not come for many years or may never come. Maybe it's over. Maybe the commercial aerospace industry is a thing of the past. There just won't be an industry anymore almost. End of days they're talking about.

Slide 16. But at Park, we did not completely buy all that doom and gloom stuff. We did not buy that the end of days were at hand. But it doesn't really matter. Either way, we've made our arrangements with MRAS to maintain minimum monthly baseline critical mass production level to preserve Park's ability to ramp up production when needed. We covered this I think during the last couple of calls, at least. So if you listened to our prior calls, you know about this. Well, it was very important for MRAS and Park that we did this. We didn't want to allow our production levels of the type of product we make for MRAS to go below the critical mass because we knew -- we didn't know. I guess we didn't know anything. Nobody did. But we had a lot of -- we believed we're going to need to ramp back up one day.

So it was ended up being approximately $700,000 to $900,000 a month. The minimums were in terms of units because it was a production thing, not a sales thing. But it turns out it was approximately $700,000, $900,000 per month, starting about July.

And even though layoffs were widespread and pervasive through the commercial aircraft industry, we laid off nobody, none of our people through all the darkest and seemingly hopeless days of the commercial aerospace industry. Listening to all these guys on TV, talking about the end of days, it's over. Everybody we knew was laying people off, but we did not do that. And it turns out that decision to not lay off people is critically important to Park because we've been ramping back up. We'd have to try to rehire these people and call them back, which I know a lot of other companies are doing. We never let them go to begin with.

A reason for not letting them go wasn't all bad. It's just we don't like doing that kind of thing as we've discussed many times in the past.

Slide 17, continuing same thing. We spoke at length during our Q1, Q2 and Q3 investor calls last year about the significant divergence from a mismatch between the minimum monthly baseline critical mass production amounts agreed to with MRAS and the then current end market requirements for GE programs that Park is on. I'm not talking about now. I'm talking about then. Airbus always maintained they were going to stay at 40. They weren't going to go under 40. All the analysts -- not all of them. I'm being unfair. A lot of the analyst and commentators, "Oh, they're going to have to -- that issues going to drop our rates." Fine. It didn't drop.

And -- but we are producing with our minimum amount about half level of what was needed to support the then market, not the now market, the then market. Inventory destocking, and this is what happened. Everybody was so intimidated, so frightened, so afraid. And like I said, the analysts and commentators didn't help very much. People weren't willing to buy anything. People weren't able to build anything. They're just kind of selling inventory down because basically the world is coming to an end. What did we say? We said to you that inventory cannot bring the stock to below 0. It's kind of -- you can't have a negative number unless you involve very creative accounting, I guess. The diversion was mathematical and sustainable. And how long can you sustain that kind of mismatch? We didn't know how long, but it was not going to be sustainable.

Unless the aircraft end market took another dramatic step down, the day of reckoning was coming. We told you that. This was our opinion. Well, it came. Destocking is ended. All the GE Aviation programs that Park is on are in a ramp mode except for the 747, whose rates are unchanged.

Let's go to Slide 18. And the ramp is looking steep. This is just an update from the slide we did last quarter. For perspective, GE Aviation program sales for the following periods where now these are calendar year periods. Just want to mention that because normally you talk fiscal years, but calendar year '19, $29.3 million, calendar year '20, oops, $15.8 million. But the last 6 months of calendar year '20, $5 million, $5 million, that's a $10 million run rate.

But if you think about it, $700,000 to $900,000 a minimum, maybe $800,000 kind of in the middle of that range, $800,000 x 12, it's about $10 million. So that kind of makes sense. So we're running at $10 million rate during the last half -- the last half of calendar '20.

Okay. Calendar year '21. Calendar year, still calendar year, forecast for GE Aviation program sales based upon new forecast we recently received from the customer, $25.5 million. What happened? Last time we talked to you, $24 million. Well, it moved up. Is it done moving up? I don't know. We'll have to see you about that. What does it mean? This is not a forecast to you. We're just telling you the forecast. We were saying our forecast to you be done on a fiscal year basis. And normally, we're providing ranges when we give you a forecast. But this is just to give you a perspective on how steep the ramp is. $10 million rate to the $25.5 million rate in a period of what, like a month. So that's perspective 19 -- Slide '19, continuing the ramp mode, we're in the ramp mode. In addition -- this is really important. In addition, we recently received an updated long-term forecast for GE Aviation. This is not just a 2021 forecast. This is '21 through '29. The balance of the firm pricing LTA. Remember, that was '19 to '29. Well, obviously, we won't talk in '21 to '29 now in terms of the updated forecast. The past is the past.

So here is something really key. On an apples-to-apples basis, the total update forecast GE Aviation program sales for that '21 to '29 calendar year period are very similar to the total forecasted GE Aviation program sales from the pre-COVID forecast for that same period, but basically back to where we were pre-COVID. That's the forecast we received. How is the updated forecast constructed? Okay. I think we told you this before. We were given units. We know what materials to use, how much material is used, what types of material used by unit. We know what the selling price is for the materials. So we just build it from there.

We built a very detailed long-term forecast. Big spreadsheets, lots and lots of detail. But that's how we build it. Our opinion, the updated long-term forecast that we're talking about now, may not fully capture the steep ramp-up of the A320neo aircraft family production in 2023, predicted by the Airbus CEO just a couple of weeks ago. And we say that because we think that those comments came after receive a forecast. And then also, my opinion is that the forecast may not capture the XLR sales opportunities. The reason I say that is because a lot of people think the XLR is going to be a big deal. And in the long-term forecast, we don't really see a bump which would be tied to the introduction of the XLR.

And maybe it's in there, I'm just saying words kind of wondering about it. But an important question. So there is some upside. We think maybe the forecast didn't fully capture these 2 things. But the other side of the equation is how will the commercial aerospace manufacturing supply chain respond to the steep ramp? That's a big question. That's -- remember the Airbus CEO has said they went out to see the supply chain to figure out what the supply chain can support. So there's 2 different things are kind of pulling in different directions, I guess.

Slide 20. How are we responding to the ramp-up? It's all about our people. Well, so Park's people count is currently 106. So what the heck happened here? The last quarter it was 107, and we told you we planned to hire 15, 20 people. So where are those people? We haven't increased our people. So why? Well, maybe people are getting paid to stay home. So who is that helping? We hear a lot on the financial news, news about all these companies that can't really reopen, can't ramp up, at least they can't hire people. It's really terrible. The government is paying them to stay home.

But don't hear too much about the people. Is this helping those people? So you might want to think about that a little bit. These are people. Some of them now haven't worked for a year. They're home, getting fat, their minds turning to mush maybe. They lose their edge. Some of these people are wasted people now. They don't -- may not have the ability to go back to work again maybe ever. Look, if you're off for a few weeks, fine. But a year, a year, so maybe some of these souls are broken souls. What about them? They're people too, you know. Their lives are being destroyed. At least some of them. But it's funny, that's not part of discussion. It's always about the businesses which can't reopen. And I appreciate that. I think that's a very good point. But why don't -- why is nobody thinking about those people? Are they being helped by this? I have an opinion about who's being helped, and it's not them. But don't worry about us. We'll take care of it. As usual, Park's people stepping up, getting the job done. Cory has done a magnificent job of kind of organizing a workforce so that we're able to meet the ramp-up. We don't -- we're not -- we don't talk about disappointing customers. That's not in our vocabulary. One way or another, we'll get the job done.

Slide 21. And so how are we responding? Thank goodness for our customer flexibility program, we talked about this a lot in a little more detail. Total current participation, 80%. We've got of 80%, 2 job categories, 47%; 3, 30%; 4, 18%; 5 job categories, 5%. Without this customer flexibility program, it would just be very, very difficult to get the job done. This customer flexibility program is just a godsend. It helped us so much during the downturn to keep things going, not laying people off, and it's helping us incredibly now with incredible flexibility to respond as we need to.

Thank goodness we didn't lay anybody off in the darkest days of the commercial aircraft industry because we didn't have to hire anybody back. They're all there. Our team is there. That's not the reason. The only reason -- the other reason is we just don't believe in letting people go. That's just not how we think about things. Those people are precious. And thank goodness for Park's great people, without them we'd not be able to get the job done. Park is very fortunate and blessed to have the great people it has.

Let's go on to Slide 22, GE Aviation program. How we doing on time? Oh boy, maybe more than 45 minutes. GE Aviation program sales history and forecast estimates. So the top part of it is the history, which you're familiar with. Q4 was $4.4 million. I think that's pretty much what we predicted during our Q3 call, a total $13.2 million. And look, that's less for '21 -- sorry, fiscal year '21. That looks like that's less than half of fiscal year '20, which is not a big shock. I don't think to anybody.

Our forecast: Q1, $6.5 million to $7 million, and that's pretty much booked; Q2, $6.5 million to $7 million; for the fiscal year, $26 million to $28 million.

Is that right? Well, I don't know. It could be. I guess it depends on what happens in part with the A320 and what Mr. Faury said, the Airbus CEO that we just talked about. And then the other side of the equation is always, can the supply chain meet to ramp up. I'm not talking about us, but if any part of the supply chain is not able to support the ramp up, that means the ramp-up itself maybe slowed down a little bit.

So again, a picture of the 747-8 departing Anchorage. So you see a lot of pictures of the 747-8. As the CEO, I get picture authority, and I love the 747-8. So even though it's not our biggest program, I like -- I just love the airplane. I love putting pictures of the airplane in the presentation. But somebody asked about this. It's actually less than $2 million of revenue for us per year. So even though it has a very sentimental value for us, it's not one of the bigger programs for GE Aviation. So I just want you to be aware of it because the program's being ended.

Slide 23, we have a little forecast here for you. First, the top box is history. So just for perspective, history, you all -- we covered the history in an earlier slide. Just to remind you, kind of broken record stuff here, that the essential component for missile programs. This is last year. '21 Q3 about $2 million and Q4 about $3.5 million, just to keep that in mind.

Now let's go to our forecast. We haven't given a forecast for a while. Well, we gave an -ish forecast, like 3-ish or 4-ish. We're back to trying to give you a forecast. We think there's still a lot of uncertainty, but we feel a little bit better. So we're providing you with a forecast.

Q1 sales, $13.3 million to $13.8 million. That's less than Q4, as you can see. But again, we don't -- until -- we don't have those -- the sales that essential component, a $3.6 million to $4.1 million of EBITDA. So we're getting back up there. Just so you know, in Q1, this is something we're not sure about. We have forecast, forecast, forecast. We do P&Ls every week and recast our forecast. But the gross margins in Q1 should be -- we're predicting quite a bit over 35%. That -- I'm not saying that's sustainable. If you look at Q2, it's interesting because it's saying the revenues are going up, but we're looking at the adjusted EBITDA down a little bit.

First of all, sorry for this broken record stuff, but there's $1 million of that essential component sales in Q2, remember, very low margins. But quarter-to-quarter, the mix changes. It's -- since we're doing a lot more military, we're going to have quarter-to-quarter mix changes, and that's going to affect our bottom line. With the GE Aviation business, there's really no mix change. It is what it is.

Military, a lot of programs and 1 quarter it will be more of this, 1 quarter would be more of that. And that's going to up and down our EBITDA from quarter-to-quarter.

For the year, looking at $55 million to $62 million revenue, $13.5 million to $16.5 million EBITDA. I think fiscal '20, it's in the prior part of the presentation, was $60 million of revenue and $13 million EBITDA.

So we're saying, yes, we're kind of back there, maybe even a bit better than that.

So just a couple of things I want to mention. These are taken into account when we do our forecast and we could be wrong. But like I told you, earlier, and we've covered so many times to give you a forecast for saying, this is what we think is going to happen based upon, of course, working hard. This is not a walk in the park or anything like that. We're working very hard doing our jobs. But we're still looking to hire people. We haven't given up. We have desire to hire maybe 8 or 9 people now and maybe some additional later on. So there's a real cost involved with people. Entry-level people. They're not -- they're expensive. Over $50,000 was soaking wet per person. A new plant startup. There's going to be some costs involved in new plant startup.

Raw material costs are going up. I mean inflation is quite a concern. So with the LTA with GE Aviation, those raw materials were locked in, we couldn't have done an LTA with GE aviation if we didn't have an LTA from our suppliers. But most of the other customers, not LTA, so we quote, requote, quite often, what we do is we, unfortunately, are -- raise our prices to take into account the raw material cost increases. That's what we do. It's not good. And we know where that ends. When prices keep going up and up and up, it's not a good thing.

Things like utilities are going up, supply is going up, shipping going up. We normally have that covered as either part of our selling price or our raw material purchase price.

And there's also, I would say, well, I speak for myself, serious concerns about the economy, what's going on, how it's being managed, inflation, interest rates and things like that. And we don't really spend a lot of time thinking about it, but we can't deny we're still living in the world out there. We still -- we do what we need to do every day, but I don't think it would be proper for us to say we're immune from what goes on in the outside world.

Okay. Why don't we go to Slide 24, an update on our expansion. Our budget is now $19 million. It was $18 million last time we spoke, so what happened? We started with $20.5 million. I think we pulled it down to $18 million on theory that business is very slow. So let's kind of hold back a couple of things, see what happens, so we can make the decisions later on. But with the ramp-up and everything, it's increased to $19 million.

Spending to date, about $15 million, I guess, do the math, about $4 million to go. Completion is basically next month. Little things will be worked on for a while, but the completion is basically next month. We start the manufacturing trials for the major equipment, which are pictured below in the top -- bottom left and right corners. July of 2021, qualification runs with for MRAS in September of '21 is what's planned. These 2 items of equipment.

We're not really -- they're huge, and it's hard to give you a perspective on how big they are because some of the stuff, we don't want our competitors to see and they're able to see our presentations as well. So we kind of took a funny perspective on these -- this equipment. They're tape line and film line.

Top right, picture of our new offices. The offices are open. My office at top right of the picture. And then you see at the bottom middle, it's a nice picture because you could see the -- on the left is a new facility and on the right is the existing facility, except with the new offices. And then kind of toward the back between the 2 of them is -- that's a passage way off to the right of the existing facility, there's also the warehouse, but that's not captured in this picture. So that is the story of our expansion.

I want to try to wrap it up here. Slide 25. Park's reflections on its 2021 fiscal year was our finest hour? Well, let's talk about that. Park had its share of tragedy and heartbreak during the year, the kind of heartbreak that does not go away.

But at Park, we don't quit, we don't give up, we don't back down. That's just not what we do. It's not our nature. And we keep going. We've pushed forward with our major expansion when some others slashed their capital spending. We stayed true to our principles when maybe some others didn't. We did not sell-out and maybe some others did. We did not lay off anybody when so many others did by the thousands and thousands.

Park's people are precious. The Park family stuck together and saw through the darkest days together. At Park, we're a family, we have each other's backs.

Slide 26. Park is a strange unusual company, filled with wonderful and special people. We're very fortunate when it comes to our people. We're not like the others. At Park, we play for keeps. We're not fooling around. We're looking to make an impact here. So Park's 2021 fiscal year may have been Park's best year ever.

I've been with the company since 1988. I can't speak to before then, maybe in the '50s, the early days and Woodside, Queens, maybe there were some great years then right at the beginning, way before my time.

But I can tell you without hesitation that, in my opinion, the 2021 fiscal year was the best -- Park's best year since 1988 when I joined the company. And I'd say that without hesitation. I can't think of another year where I compare -- that would compare I think our best year ever. That's my opinion anyway. Yes, our finest hour.

So we would save the last picture of one of our crews, which we love to do. The top row, that's Guadalupe and Juan. The bottom row, Jose who's the lead, Joshua and Serafin. Now what's interesting is, it's this Park's second shift Solution Treater and Film Line crew. Wait a minute. Those are 2 different things.

Well, what's going on here? This is the customer flexibility program. Each one of these 5 guys has been approved to operate both lines. And that's a big deal. You don't put somebody on these lines with, okay, here you go, just hire them. No, it doesn't work that way. So you see how it works with customer flexibility. These guys are able to move back and forth between those 2 major lines, and that was so important to us during the downturn and so important to us now when we're trying to ramp up. So that's how it works. So I think we're at the end of the presentation.

Slide 27 is our thank you slide. Operator, so we're happy to take questions to the extent that we -- there are any.

(Operator Instructions) And our first question comes from Brad Hathaway from Far View.

And congrats, Brian, on getting through such a tough year. Really very impressive. I appreciate your willingness to give us a 2022 forecast and all the commentary about kind of the ramp-up that you're seeing. Given the things seem to be getting better and you kind of have previously commented on kind of prior forecast just being shifted all to the right, I was curious if you had any thoughts on kind of those prior forecasts. And also you're kind of when you will feel comfortable, perhaps giving us a long-term forecast again.

So as we just commented, we're forecasting for the current fiscal year. It looks kind of like the 2020 fiscal year before the calamity occurring for the world and the industry. Our forecast may be a little bit better, particularly EBITDA, kind of right in that range for top line. I don't know how to answer that question except maybe one way to look at it as that's kind of our restarting point.

Obviously, before we go out with a new long-term forecast, we can't just kind of take whole forecast and kind of roll it out or push it back to the right by 2 years, that really wouldn't be right. We have to take into account everything we know now and all the updates and all the new developments, and there are significant new developments, I think most of which are positive actually. When we'll be ready for that? I don't know. I don't really feel like it will be next quarter. But let me just say, I would hope that before the end of the year, this current year, we'll be able to roll out the forecast for more than just 1 year. The -- even the 1-year forecast, as I said, there are uncertainties that we're still dealing with. It's not like kind of a stable world right now. We feel good enough that we're able to provide something to you.

I don't know how to answer that second question. I would just say I'm going to hope that by the end of the year. Because what's happening is we feel like we're getting a lot more useful information and -- what we're doing is we're really listening to what Airbus says, what Bombardier says, what Comac says, what Boeing says, for commercial I'm talking about, and kind of not -- kind of tuning out all the analysts and everything and the commentators because statements really have not been helpful and have been kind of wrong. But it's really great like for the A320 to be in that program because forget what everybody else says, how about the Airbus CEO? It's so helpful to be able to tie what we're doing to what Airbus says, and we can do it. We can do it with a pretty good precision once we know what they're talking about. So I don't know that -- sorry, not give you a better answer, but I think that's all I can think of right now.

No. But anyway, it's good to see everything after a tough year moving kind of -- all the programs seem to be moving pretty positively. So that's great. In terms of M&A, is there anything you can kind of update on what you've seen there?

Yes. So I think last quarter, we talked about a little bit, and we thought that last year we'd be able to get some distressed sales. That didn't materialize. Our advisers told us that's because the Fed made it possible for people to hang on. We're pretty active in 2 areas. We're actually putting a preliminary bid in one company, I think, later in this week. We're still looking. We're trying to find niche things. We're trying to find things that everybody and their brother and all the financial buyers are not piling up on because it just drives the price up so much.

But the other thing is that we are -- we've identified a certain product area that's very closely related to composite structures and composite materials. And we're doing some pretty good research, I would say, in that area, and we've actually reached out to several companies that do have operations in that area.

I guess, at this point, I won't specify, but it's something that would be used by a company producing composite structures in addition to the composite materials. So we think it's a really good tie-in. And some of our customers have actually helped us in that regard as well. So we're optimistic. We're talking about -- optimistic. That's probably not the right way to say it. These days, M&A is more difficult.

But we feel better about that than just going into the auctions, let me put it that way. These are companies -- some are private, some are divisions of large companies. They're probably not going to be for sale. So we're trying to initiate the discussions, and we'll see how those go. And then the other area I just want to mention is the project we worked on and we know about the joint venture discussion in Asia. But there are other projects that we work on with some of our large customers that wouldn't be really M&A, but would involve a significant investment of capital. So I guess I would talk about those maybe 3 things.

We certainly haven't given up or let down all even though we have this concern about these companies being bid up right now with, I guess, M&A inflation. I don't know, maybe it won't last, maybe that will reverse. We'll see. So obviously, we'll let you know as soon as we have something to report, and we don't have anything to report right now. But I guess the message I would send is that we're still working on it. We haven't given up or just decided taking a year off or anything like that or wait till valuations come back down.

Understood. And in your mind, I mean, obviously, if things continue to improve, one would think that the M&A environment might become kind of harder in the future, unless you can find one of these deals that have kind of pushed to you or something really niche. Is there a point at which you decide that the cash on the balance sheet is not going to be usable for some kind of investment and you consider other alternatives?

Sure. There's a point. I don't know what that point is. But yes, sure, there's a point. So that's kind of an open question for us. I understand exactly what you're getting at, at least I think I do. I don't have -- I can't give you a date, but it's something in the back of our minds, absolutely.

Yes. I mean, obviously, my preference would be that you find an excellent bolt-on acquisitions. So if you can do that, that would be fantastic.

Thank you. And just so you know we feel the same way about it. Thanks for the comment. Go ahead. Sorry.

No, I was just going to say, thank you very much. I appreciate all your efforts to generate the results you did in a year like a pandemic year like last year is pretty incredible. So thank you very much for the effort.

Thanks for your comments.

(Operator Instructions) And our next question comes from [Leonard Cooper], private investor.

Brian, it sounds like you're busy bees.

Yes, Len.

I just noticed the story saying that we're going to go -- the U.S. is going to have a wind turbine farm. I think it will be the first authorized by the government. Are we involved in that? Or can we be involved in that?

We're not -- we don't want to be. Wind turbines are not a market area for us. It's actually -- if you look at companies that are involved, it's not really a very happy story. Those are low-margin programs. It's -- we're aerospace, and that's pretty much it.

We decided to go in aerospace. We realized right from the start that we didn't know what the heck we were doing that you don't know what you don't know. Aerospace is such a huge complex field that we felt as a small company we don't have a bandwidth to get involved in other areas, boats or wind turbines or skateboards or whatever. Composite is used obviously in a lot of things. We're an aerospace company, that's it. No wind turbines for us.

Okay. It's just there's a lot of aerodynamics in those blades.

Yes. You're right. And I think they're getting more sophisticated. I'm not an expert in it, but I think they're getting more sophisticated from an aerodynamic perspective as well.

Thank you. And I'm showing no further questions. I would now like to turn the call back to Brian Shore for closing remarks.

Okay. Thanks, operator. Thanks, everybody, for listening. I'm sorry, I said 45 minutes, I think we went past 45 minutes. I tried to rush through it. But there are always a lot of things we want to cover to help with perspective. So thanks again for listening in. Have a great day, and feel free to call us. Matt and I are available anytime you want to talk. So -- and we'll talk to you fairly soon because our first quarter ends actually just a couple of weeks. So I think probably early July we'll be doing our first quarter announcement.

Okay. Take care. Have a great day. Goodbye now.

This concludes today's conference call. Thank you for participating. You may now disconnect.