Good morning. My name is Latoya, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corp. Third Quarter Fiscal Year 2018 Earnings Release Conference Call and Investor Presentation. [Operator Instructions] At this time, I will turn the call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin.

Thank you, operator. This is Brian Shore. Good morning, everybody. Happy New Year. I have with me Matt Farabaugh, who's our CFO. Actually, not officially with me. Our office is closed today because of the storm, so we're both at remote locations. So, if we seem like we're not as connected as usual, that would be the reason. So, a couple of housekeeping things here. Again, the office is closed. So, if you want to contact the office, the best thing you'd do would be e-mail Martina. Her e-mail address is provided right at the top of the news release, so you can contact her that way. Also, on our website is a presentation, as well as a supplemental financial information. Now as you know, you veterans anyway, Matt normally will read through the supplemental financial information. But we're not going to do that today just because we have so much to cover. So, the supplemental financial information, it's on our website. I suppose that you can take a look at it there. This information is also - and you can also find the information - the supplemental financial information, as well as our presentation at sec.gov. Okay. So, why don't we get started? This is still Brian. Let me just spend a couple of minutes before we go to the presentation to talk about the third quarter. So, electronics, let's talk about electronics first. So, we talked many times about the process of getting qualified on new 4.5G and 5G programs with our Meteorwave product line, in particular. I think our guys have done a really great job, Chris, Tony and Mark, in Asia in particular. I think you're doing a wonderful job. And we're on many, many programs. Now the issue is, of course, that we can't force…

Thank you. [Operator Instructions] And the first question will come from Sean Hannan of Needham & Company. Your line is open.

Yes. Thanks for taking my question here, good morning folks and Happy New Year. Can you hear me okay?

We can hear you fine. Happy New Year Sean.

So certainly - you're certainly starting off here with a bang here, Brian. Pretty material announcement around the evaluation of the electronics business. Is there a way perhaps if you can give us a little bit of context in that you've laid out some of your general viewpoints and estimates? Looking at your aerospace business, you have some assumptions that you're making in terms of where you could potentially ultimately end up with your net cash? Can you talk a little bit about the profitability of the electronics business today as you're looking to evaluate that and potentially consider the sale?

No, I don't think we'd do that. Obviously, we're going to be asking people to sign NDAs. And then we'll select potential buyers and we'll send them information based upon them signing NDAs. We're not going to invite everybody into the process. We want to feel the company is a good company, good reputation, honorable company. At that point, we would send the information to them. But we're not going to comment on the profitability or top line, bottom line of the electronics business at this time. I think that my feeling is - this is not your question, but I'll comment anyway, that many serious potential buyers will find this to be of great interest for a lot of reasons. The numbers obviously would be important, but it would be the numbers and other reasons, strategic reasons.

Okay. Is there a way, perhaps, Brian, if you could at least give us an indication, was the electronics business profitable within the quarter you had just reported and the last quarter as well? At least, are we in the green or are we in the red at this point? Some indication at least would be helpful.

We're not in the red. But remember, we don't segment electronics and aerospace. There's no hard answer to that question. I would just say we're not in the red. So again, we will present the electronics business probably to the potential buyers. That will be on a confidential basis. I think that the numbers they see will be fine. But I think that the proper strategic buyer will also look beyond the numbers and see even more value as well. But it's not in the red.

Okay. That’s helpful. And then switching gears to the aerospace side of the business, on Slide 11 Brian, you’ve laid out for aircraft platforms as examples with different engines where you have got presence and you know it is true I believe one single jet engine company that places you on those platforms, I just want to make sure that I have that accurately that has been an assumption and I just want to validate that.

That's correct. Slide 11 and Slide, I think, slide - let me just check for sure, Slide 12 relate to GE Aviation. So, everything on these slides relate to GE Aviation. These are all programs we have through GE Aviation on Slide 11, second item.

Okay. And then these are the one programs that are in hand and would inherently be factored into the forecast that you laid out, which was very helpful to see, by the way. Whereas the bullet, the upper right of the slide, indicating you're qualified for internal fixed structure components. Would that be factored into the thought process for organic revenues that would grow? Or given that it's only qualified, is that something that would be excluded? Just trying to understand context here.

Good question. The answer is generally arrived at the items on which we are qualified would not be included in that forecast.

Okay. And then that leads me to kind of the last question here and then I'll get out of the way. Can you outline for some of us some of the key opportunities that you've either referenced today or in some prior calls or just overall, that would not be in the numbers, in the estimates, forecasts that you've sized on that one page? Can you outline for us some of the opportunities not in those numbers and then somehow qualitatively give us a perspective of how sizable those could be as an additive factor to what's been outlined as a potential revenue trajectory here?

Okay, well maybe the way to look at it is, I try to, we try to break down what the forecast does include as some limited things. So, what it does include is the rest of the universe and I mean I do not know how to even approach that there is so many opportunities from so many different directions. I mean some are even with GE Aviation, there is other opportunities with this large aerospace company I spoke about, but obviously not in the aerospace companies in the world. So, also new products are being developed and worked on, those lend more opportunities. The products which we develop with GE Aviation, where they help us get qualified. Just so you know, when you're in the aerospace business and you have a product you want to sell and you go to a new customer, the first thing they're going to ask you is, what programs are you on? Why is that? They say, I don't want to be the first guy to try you out. And there's so much - it's hard to comprehend the amount of money that's required to be spent just to qualify you on a major aerospace program. So, they won't do that if you're not proven in quantity. So, the fact that we just said, yes, we are on GE Aviation programs. Okay. That's the end of that discussion because GE Aviation is known to be a pretty difficult company to get qualified with. I mean, to their benefit, it's good. It's good or difficult. But it is a lot of credibility. So, what I'm getting at is those products that we've developed with GE Aviation's help and are getting qualified in GE Aviation's program, GE Aviation has been very nice to us. They said, well, you can sell those products to anybody you want. So, we're just getting started with selling the products - that we're promoting the products and trying to sell the products that we've developed with GE Aviation, where we're qualified on those programs to other aircraft companies, large and small. Remember, we developed with GE Aviation, we talked about this before, an AFP material. And that's going to production now with GE Aviation. AFP, Automated Fiber Placement. It's kind of a newer technology, robotic technology for producing composite parts. We can sell that material to other companies.

Okay. All right, that’s helpful. I will see if I can follow-up around this. Thanks for taking the questions here folks.

Sure. Good day, Happy New Year.

Thank you. The next question is from Scott Scher of LMJ Capital. Your line is open.

For someone who's not that familiar with your company, can you point us to any transactions that have taken place over the last two or three years that are comparable to the business that you own?

Transactions? I'm not following you or what you're getting at. You mean…

I want to be able to guess what you're going to sell that business for electrochemical. I'm not quite familiar with your company. So, if an investment banker is going to put together a pitch book of comparable companies and comparable transactions, and that's how they do things. So, for someone who's just trying to ramp up real quickly, maybe you can point me to, say this company that sold a year ago sold for 1x revenue. That one sold for 2x revenue. That sold for x, that sold for y. Any direction would be fantastic. Thank you.

Yes. There are really no comparables for this business. There are obviously lots of different companies in the electronics industry, but there are no direct comparables in terms of any kind of transaction I'm aware of in quite a few years. I'm just thinking out loud, but I don't think so. Rogers bought Arlon, but that's not really a pure comparable. You can look at that transaction. And that's really a stretch to find - to think of anything. Yes, of course, I'm familiar with what you're talking about, what investment bankers do. But the discussion, it's well, there aren't really good comparables.

So, if I could follow up then. So, you made the decision to sell this. How far along are you in understanding what you perceive the value to be? And that's part a. And part b is, if the value comes back and it's materially different than what you think, possibly lower, would you reverse course and not sell the business?

We're not going to commit to sell the business unless it's right for Park. And we're not going to sell the business to the wrong party either. So, it has to be right for Park. So, this is something that we've given enormous amount of thought to, deep consideration. We have a good feeling, sense for what the value is. Obviously, we're not going to disclose that. But if for some reason the process ends in something that's disappointing, we're in control. We're not going to do something just to do it. So, we don't have the right buyer, we don't have the right number, it's not going to happen. But I would say that I'm really optimistic that there'll be serious interest, and this would be from strategic buyers. We don't really believe this is the right kind of opportunity for a financial buyer, not that we wouldn't necessarily talk to a financial buyer. But I think this is more an opportunity for a strategic buyer. This business is an iconic business. It was started in 1961, and it's known very, very well throughout the world. It's a very special electronics business, kind of a niche business, a little different than our competitors, which are largely the larger Asian companies. The company has very good technology, has access to the U.S. market, presence in the U.S. market. These are special things that I think would be coveted.

And then one follow-up question, again I apologize I am not familiar with your company. The aerospace business is a separate entity and run by separate management correct?

Well, see that's the problem. They're to some extent, but then there's corporate people that are covering both. And we don't like using the term corporate, but let's call it Park Electrochemical people that are covering both. So that's a problem, and that's where we get really spread real thin. So those high-level resources, assets aren't able to focus and do both - don't do justice to both businesses.

So, is that, I mean, I guess that's the issue. I mean, obviously, you said now you'll have the opportunity to make acquisitions in aerospace. Obviously, you've been sitting on an enormous amount of capital for years, and you didn't feel compelled to make those acquisitions. So, it wasn't that you didn't have access to capital, which you obviously have too much of. It was that you didn't have the intellectual bandwidth to be able to make acquisitions and grow the business at the level or the rate that you thought you could because you didn't have the intellectual bandwidth to do that?

I don't know if I would put it that way. First of all, the opportunities are developing now, but based upon 10 years of hard work. So, I'm not sure we were prepared to really do significant acquisitions 3 or 4 or 5 years ago, but we probably hadn't earned the status to have special opportunities for the acquisition 3 or 4 or 5 years ago. So, I think I would agree partly with what you're saying, but it's not just that, well, if we had a couple of more people, we could have done the acquisitions, 3 or 4 or 5 years ago. We probably wouldn't kind of have to impress the business enough to be able to do the acquisition. That would be special acquisitions.

Got it. Thank you.

Thank you. Thanks for the questions. Happy New Year.

Thank you. The next question is from Eric Harwood of Tudor. Your line is open.

Hi, just a couple of quick follow-ups on the questions that just came through. I guess, in terms of you made kind of an indication on the projection slide that you built this new cost structure and financial model from the bottoms up. Should we expect -- excluding acquisition spend, should we expect a change in the cash flow profile of the stand-alone aerospace from the way the business looks today?

Yes. I mean, we haven't given you cash flow information, but I think the cash flow would be positive. If you look at EBIT/EBITDA numbers, I mean, I think you can translate those under cash flow fairly easily. So, I would think that the cash flow will be positive, will be good.

Got it. And then I guess just one. So, you've been in this electronics business for a very long time. Why not - it sounds like the financial profile of that business is perhaps not quite as attractive as the aerospace business. The aerospace suppliers are trading at possibly higher multiples. Why not sell that business and focus on electronics, which has been your bread-and-butter for 50 years, 60 years?

We think electronics would be better off owned by a different kind of company at this point. At least that's our objective, to find the right owner, the right buyer. But we didn't put in 10 years of very, very hard labor with aerospace to just now back away and sell it. We think that aerospace has so much potential that's not been realized at all at this point. We're just, I think, really getting started with aerospace. We paid dues. And it's not that we're there, not that we achieved what we want, not that we're not going to pay more dues. We paid a lot of dues, but I think that the results of that is now we're positioned to take advantage of where we are in electronics. I think it would be very weird to want to sell it now. I mean, I wouldn't have put the 10 years in if we're just going to sell it. I put the 10 years in because we're going to build something meaningful and lasting for the future for our company and for our investors.

Got it. And then on the electronics, it sounds like you have a few potential acquirers in mind, specifically, I’m not going to ask you to say specifically who, but have you had in-bounds from competitors our strategic or sponsors of that business in the past?

Not too many. I think it was probably commonly known that we would not have an interest in the past, so not too many. But yes, this is a strategic situation, in my opinion, so it doesn't take long being in the business as long as we have to come up with the usual suspects pretty quickly as to who the likely strategic buyers would be. And like the up close as you imply, we're going to name names, but of course, we talk to our banker for the list. It's like, well, do you have two minutes? Because here's the list. I mean, it doesn't take long.

Okay. And then one last quick one. Have you discussed the decision and ultimately possible sale with the top customers and is there any sensitivity around the, I guess the agreements that you have with them?

You’re talking about aerospace or electronics?

Either, yes.

Yes. So not very many. Maybe one or two critical customers that we really could trust because obviously it's a very confidential matter, maybe one or two we've given an advance notice to. Not many. We're going to go into that communication process now. I think some of our guys are already talking to our customers, particularly in the electronic side. And the message for them, and the OEMs as well, is we're not just dumping this contest, this business. We want to find a better owner for the business that can do more with it, enhance it, will focus on it, have resources. This should be a better thing for the business because of course, we want to reassure our customers and OEMs this is going to be a positive thing, not a negative thing. Our intention is to make this a positive thing for all parties concerned, electronics, aerospace, investors, our people who work at Park, all parties concerned; and then, of course, our customers and the OEMs, customers.

Okay. You said before that you spent about two months working on the models. Is it fair to assume you've also been spending that same amount of time with bankers and the board evaluating the transaction? Or are you relatively, I guess, early in the process?

No, I think that's fair to assume. We spend a lot of time in all different levels, all different aspects of this potential transaction, as you just implied in your question. Not a new topic. No. [Indiscernible]

Thank you. I appreciate it.

Yes, thank you. Happy New Year.

You too.

Thank you. [Operator Instructions] There are no further questions in the queue. I would like to turn the call back over to Brian Shore of for closing remarks.

Okay. Thank you, operator, and thank you all for listening in. Very nice talking to you, very nice updating you on our business. And so unfortunately, our office is closed because of the storm. If you want to contact us, like I said, the best thing to do is send an e-mail to Martina. Her e-mail address is right at the top of the new release. And other than that, hopefully, we'll talk to you soon. And I want to wish you all of you and your families just the very best of everything in 2018. Goodbye. Have a good day.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day everyone.