Good morning. My name is Liz, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corp Fourth Quarter Fiscal Year 2019 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. At this time, I will turn today’s call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, Liz. This is Brian. I have with me Matt Farabaugh, our CFO. Just want to let you know that we’re not in the same location. We’re remote. So we’ll try to coordinate the best of our ability, but I guess we are in the same location in May but we’ll then be a little bit less or completely smooth with our coordination, but we’ll do our best. So, let’s start by reminding you or telling you that there’s a presentation on our website. There’s also webcast, I think some of you in the webcast already see the presentation. But if you haven’t seen the presentation, you just dialed in, you want to go on our website and take a look at that because we’re going to be going through that presentation today. So, why are we doing that? Because we haven’t, the only – I think we’ve done that only one other time, one prior time for our investor calls. But Park is somewhat of a new company, somewhat old, somewhat new, but our fourth quarter was our first quarter as a pure aerospace company. And we’re not very well known either. We’re also in between analysts, which we’ll cover a little later on in the presentation. So we wanted to do just try to help our investors to understand the company as at the best of our ability. So it’s – the presentation will not just focus on the Q4 and the year numbers, we’re also going to try to explain a little bit about who we are and what we do, some of you already have know this, so bear with us, but maybe some of you don’t. And like I said, we’re not that well known and we’re just kind of emerging as an aerospace…

Yes, sure. You can note that there are a few items in the quarter outside of the normal operations so we list them here: stock option modification, loss in sale, marketable securities and Tax and Jobs Act. The first two stock option and loss is sales of security, they were laid to the special dividend that we had done in the fourth quarter. And you can see that we backed them out of the GAAP EPS of $0.08 and they have an impact of – they reduced or our EPS in the quarter by $0.05 and $0.02 each. So if we back them out it’s $0.07 better than, than the GAAP number to get to what would be a normal – ongoing operation. And then the tax and jobs cut, Tax Cut and Jobs Act that really was adjustment for clarifying some guidance for the new tax act that was enacted in December of 2017. And that had the impact of a lowering our EPS by $0.04. So if we can back that out, those three special items really take our EPS, GAAP EPS from $0.08 up to what would be a sort of a normal EPS going forward of $0.19.

Okay, thanks Matt. I thought it’d be useful to walk the investors through that. While boy – you’re on, could you also give us some help on understanding what to expect for our tax rate going forward? Let’s say in fiscal 2020.

Yes, going forward we would expect tax rate probably in the mid-20% range. So we saw our tax rate this quarter was a little bit lower than that just because of some various adjustments and things that were going on for the quarter, in part related to the Tax Act, in part related to the sale of the Electronics Business. But going forward, I think, we probably would expect something in the mid-20.

Okay, that’s good. And then what about investment income? What do you think we’re going to see in investment income going forward, let’s say into the next year by quarter?

Going forward, well assuming that our cash remains fairly constant and the interest rate environment remains fairly constant. I would say that our investment income and in the quarter is going through this year should be something in the area of say $900,000 in the quarter.

Okay, excellent. We wanted to give you that perspective because the tax rate going forward and the interest income going forward, maybe a little different than what you saw in Q4. So we just wanted to have that understanding. Okay, good. Let’s go on to Slide 7. So we’re talking more about our quarter, quarterly results in thousands. There’s a lot going on here. First of all, we talked about this at some length in the third quarter call. But if you – well I guess we need to reference largest part of our business goes to GE Aviation programs and that’s somewhat of a driver of our numbers. Last year, they were a little over 40% of our revenue and I think we have a slide on that little later on. But in the first two quarters there were some destocking going on, this is not our inventory, it’s the customer’s inventory or some of their suppliers, when I say destocking. And then in their last quarter, fourth quarter, restocking. So there’s kind of a little bit of a whipsaw impact there. Now we’re warned everybody about that in our third quarter, we said that the fourth quarter was going to be quite strong. And there are two reasons. One is the fundamentals, in other words, the underlying programs are ramping, but also some of the inventory ups and downs. And that’s something we’ll be living with for awhile. Maybe we’ll touch on that a little bit more later on in the presentation. But one of the reasons is that most of the programs are on are the ramping or even in development. They’re not mature programs where everything is in kind of steady state. So to manage the inventory on the part of our customers is a little…

Sure. I’ll quickly go through the cash math here. So, year-end we had about $152 million of cash and marketable securities, but some of that is going to be used up. There’s things that we have going on where we know we have to use some of that cash. One of those is transition tax. So it’s again, the new tax act that was enacted back in December of 2017. We have – the government gave everybody eight years to pay off the taxes related to that enactment. So we have about $19 million more of taxes to pay related to that new tax act and it goes out for another seven years. At this point we paid one of those eight years. Additionally, we have announced the expansion of our Newton, Kansas facility and we paid a little bit. I think the estimate was about $20 million of cost. We paid – put down some deposits upfront. At this point we have about $18 more million based on our estimates of additional cash that will have to layout as we do that expansion. So that – if you back those out of $152 million, we have about $115 million for cash remaining for use on whatever seems to be appropriate going forward. We paid – since fiscal year 2005, $507 million of dividends, that’s $24.75 a share over that period of time. And Park has paid regular quarterly dividends and without ever skipping or decreasing them for the past 34 years. So 34 years of ongoing regular dividends. At this point, you’ll note that by looking at our balance sheet that Park’s debt is zero, so we have no debt, no long-term debt at all at this point. It gives us a lot of flexibility as well.

Thank you, Matt. So a good summary. So going to acquisition philosophy, as Matt said, we have about, if we take care of these items we’ll have about $115 million of cash left. Even though we paid $507 million of cash dividend since 2005, we have no long-term debt. We still have some cash available. But we have a pretty active acquisition program if you will, but our strategy is a little bit different, I think we call them hit them where they. We participate in these auctions and we think they’re just not usually for us. Why? Because, first of all, the prices – value seen get bit up and we’re not going to overpay for something and it just for looking long-term, we’re not looking to make a splash for two years and then somebody else’s problem when somebody retires and something like that. We have to buy – our objective is to buy something that will meaningfully contribute to Park’s value over the long period. It needs to be something unique, something different, maybe something a nichey. One of the things we’ve done is we’ve worked quite a bit with a couple of OEM customers that have been very helpful to us, in terms of pointing us in the right direction. These are aerospace companies. In other words, let’s say you like us, maybe love us, but they have other things they buy for their programs, which maybe not so happy about. Other products they buy, maybe not so happy with the supply chain in that area. So they pointed us in those directions, we even had some overlap, where OEMs I’ll pointed, certain areas within own and you’re [indiscernible] some things going on there. Not only are they giving us the products, they’ve also given those…

[Operator Instructions] We have a question from the line of Leonard Cooper, Private Investor. Your line is now open.

Hi, Brian.

Hello. Leon, how are you doing?

Okay. Yes, I’m good. But I sit here wondering whether all this is for naught, because almost every day we read about climate change and I wonder a real polluter. We’re making active efforts not to pull.

Well, are you talking about our production or are you talking about the end products?

About both, factory...

Okay. Well, I mean as far as our production, we’re very, very careful about respecting the environment, particularly any kind of emissions, we have very strict standards that we comply with. So, I don’t think we’re a polluter. I don’t think so. In terms of the end product, so, if you looking at the – like the leap engine for instance, the whole turbine only engines are to be more fuel efficient. I shouldn’t say the whole turbine index some major thrust of it that are fuel efficiency, not – you’d have to talk to Boeing Airbus. but my guess is it’s not just to protect the environment. So, you get better efficiency, better range, better performance out of the airplanes. So, I looked at some people are saying that we need to all take trains in the future. No planes. Well, if that happens, it’s probably not a good day for park, because we’re an aerospace company. We’d like stuff that flies.

Well, I wouldn’t worry.

No. Okay.

Keep up the good work.

Well, thank you, Leon. Okay. Yes, sir.

Go ahead.

I guess that’s it from Leon.

our next question comes from the line of Christopher Hillary with Roubaix Capital. Your line is now open.

Hi, good morning.

Good morning.

First, congratulations on the progress and thank you for all the clarity on your business and your forecast. It’s greatly appreciated.

Well, I glad you liked it. As I said at the beginning, we’re really looking for input on any recommendations for future quarters that what kind of things you’d like to see or hear, but thanks for the input.

Yes. I certainly think medium-term targets are an excellent way to give an outlook in the business that balances a long-term with the short-term reality. So, thank you again for that. I guess my question was, I wanted to ask you, it’s unusual to find a company of your size growing at your rates, at your level of profitability, particularly during a project ramp. Can you share any comments that you might have about how you’re managing your profitability as you go through these numerous products are ramping up?

Well, I don’t want to be kind of too much of a wise guy about it, but let’s talk about 1954. I mean the company made whatever $270, but we’ve always had kind of a thing. And this I’m curious about making money and sometimes more, sometimes less. We’ve gone through difficult times, difficult transitions, five, six years ago, we were going through a difficult transition, to try and get aerospace up and running with a lot of setbacks. A lot of things weren’t going right. But making money is something always be pretty committed to. So, we manage our business very carefully. now, we’re always looking for opportunities. And as you’re kind of, I think, complying anyway, those opportunities require investment, right? but we don’t do pine size stuff, it has to – for us, be real as to be something tangible. We’re not like dupont, I’m not – some other big company like that, I’m not putting it down. That’s good for them, where they can invest in kind of Blue Sky R&D that’s not for us. the things we did was with MRAS are just wonderful, because they helped us a lot and we worked with them closely. they helped us develop these products, developed the technologies, get them qualified, get them unlive programs and if you’re in the aerospace, especially materials, you’d think, well, I could spend a lot of time and money developing new product, but who cares, because it’s not going to be qualified in the program. They could take 10 years and they never, it’s like the thing about a – what is it four or a tree falls in a forest and nobody’s around, let’s make a sound as a matter. So, I don’t know how to answer that question except to…

Sure. I understand. I guess it’s still a general question, but I sensed in your comments today that you are potentially a bit more confident or enthusiastic about the company’s ability to add incremental business partners or projects, is that a fair assessment of your comments today?

I think that’s right. I agree. And just one other comment about that is that credibility is the really, really, really big deal in aerospace, why is that? This aerospace such a conservative industry. And the reason is that it’s just very risk adverse. I mean, you don’t want to make a mistake. Here’s – look what happens when you make mistake. It gets to be, front page headlines of the Wall Street Journal. I mean, if you’re making screwdrivers and make a mistake, you are probably not going to get – make the front page of Wall Street Journal and CNN and everything else. So there’s a lot of really deep risk aversion, but the credibility that we have from being on those GE Aviation programs, GE Aviation is known to be – well, some people say maybe the most difficult, large aerospace OEMs to get qualified where to get on their programs. I know people say all this. They are too strenuous. They do too much in terms of the qualification procedures. There are too tough and they complained, but look, it’s their business. They are the right to decide how they want to run it. But the point is that the industry knows that. They know that we’re qualified and it is very critical structure but is very important structures and that gives us enormous credibility. So the credibility gap has gone, it’s closed. So when we look at a new program, they’re not going to say, who are you and what are you qualified on? Because they’re not going to want to take the risk. Look, I’m the first guy that really [indiscernible] program once you come back, and do something else. And I’ll be the second guy, the third guy. So I think that credibility helps a lot and the stuff we’ve learned over the recent years and helped a lot. So I think you’re right. I think we are in a better position to take on new programs as a result.

Thank you for that. And then I want to say, I agree with your commentary about the M&A landscape and the types of transactions that you look for. It also seemed today that you sounded a bit more optimistic that some opportunities were in the pipeline. Is that also a fair reaction to your comments today?

The M&A pipeline.

Right? It sounds like in the call, you are a bit more confident that some things were starting to shape up, whereas maybe in some previous periods, you seemed a little bit less certain.

Well, we’ve been more active. We’ve contacted a number of companies and in many cases, like I said, we were put in touch with these companies, by these OEMs, looking for some more help. And we have another list, which has got a couple of weeks ago for one of our OEM friends and we need to follow up with that list as well. We’ve been kind of tied down with they’re getting our quarter done, everything else, but we need to get back to that. So, the way we – what’s happened for us is that these are not companies that are hard bankers to sell. Sometimes they are individually owned, family owned, but have some unique or interesting technology. So the first reaction is, well, no, we’re not for sale. I mean, okay, all right, well, let’s stay in touch. We’ll see you at the trade show or something like that. Let’s keep talking, and often they’re very open. We will not do hostile takeovers. This is a private company anyway. So it’s not like we’re a threat to them. And maybe they were a little interested in the back of their mind. So I think it’s a process and what we can do is start the discussion, but we can accelerate the pace of it. And if we try to, that problem would just turn some of these people off. So I would say, we’re more active, but to some extent, it’s going to be a circumstantial as to whether and when we bring something to the finish line.

Well, you certainly have this strong track record with your capital return in investments. So I encourage you to continue doing what you’re doing. Thanks very much.

Thank you for your comments.

Our next question comes from the line of Brad Evans with Heartland. Your line is now open.

Good morning, Brian.

Hi, Brad. How are you doing?

Well, thanks. Hope you’re doing well. I thought the presentation was highly informative, too. So thank you for the presentation. I just had a follow-up question on the new business pipeline and I was hoping that if you could just qualitatively discuss how that pipeline has changed in terms of how you want to characterize it in terms of size or activity as it relates how big or why that funnel has become or how it’s changed in the last say six or 12 months and how that funnel could affect the 2023 forecast that you put out for – that you’ve had out there for some time now.

So that forecast, Brad, doesn’t assume any huge home runs or grand slams. It’s not like we’re thinking some major programs are going to come out left field. That forecast is kind of more of a working-class forecast based upon things we know programs we’re working on and programs we hope to get on rather than some kind of wide-eyed optimism. In terms of the funnel, yes. So I think the funnel’s pretty good. I think we’re a little challenge because we need to be – we need to put the resources into these and I think we need to do a little better work, do a little bit better job of putting resources, identifying and putting resources into the opportunities. I think they’re a little bit – they’re more than we used to. And it’s important that we don’t pass them off, because we’re so busy right now, that revenue is growing we don’t have to worry. Of course that would not be a good attitude. So I don’t think that it’s very helpful because I know what kind of perspective that gives you, maybe in some of our future calls we should have somebody from Marketing on or maybe Mark, our COO and maybe he could talk a little bit more about some details. But sometimes the problem is that the customer doesn’t want their name mentioned. One of the things that we are really excited about is when they called eVTOL, electric vertical takeoff and landing vehicle that’s being developed by large OEM and actually in Q1 this quarter, we’re expecting $500,000 of revenue and that was pushed out. We used to redesigning the due profit on your project redesigned to pull it back for that, but that’s a really nice program to be involved with. And some of these are going to be larger, some smaller development course, so who knows, it could be more than that. I’m not sure we would have seen that kind of program a couple of years ago. I’m not sure about that. The other thing that I would just mention is that, like I said, Brad we’re really pleased with the ST Engineering Aerospace acquisition, they’re really good people and we know them for a long time and we’re hoping that it’s possible that will lead to more opportunities, not just through the Middle River, but through the other areas that ST Engineering Aerospace involved in. So, we’re pursuing that and we’re hopeful. So, I don’t know, but maybe we’ll try to do a better job during some of our coming calls with some detail on and maybe talk through some of these opportunities. Again, I just have to mention, we may not be able to mention names at some case, that’s always a little bit of an issue, especially when we’re talking about new stuff, development stuff, which is I think what you’re interested in.

Right. So it sounds like the new business pipeline is highly active and it’s limited by resource constraints and it’s a good problem to have. So keep up the good work there. I’d be curious to follow up question on the pipeline as it relates to the military and space end-markets, which I know we don’t have a lot of exposure today and the UAV market is listed as – you’ve got that in the compendium here as one of the end markets you’re targeting. I’m curious if you could talk about, how you see the military and the space and markets perhaps as a growth potential for the company over the next several years. A – Brian Shore: So it’s one of our target markets. We also have a potential product, when you were thinking of developing that would be for a composite to use in space. We do have our structural program, which is used in space programs like the James Webb Space Telescope. Also with that, the fact that we’re one of two U.S. owned composite material companies might actually help our penetration into military and space. So we’ll see you about data, I’m not sure, but it’s one of the markets that we’re looking into those – I would describe it sounds like, casual one of the markets where we’re trying to pursue. The UAVs I think we’ve mentioned Brad, this is one of our large customers in the past. And I think most of what we do with Kratos relates to UAVs and there is eVTOL program that we’re interested in. So, well I shouldn’t say interested in and we’re qualified on and we were expecting to actually ship, like I said, $500,000 in Q1 on that program, but it was pulled back on redesign. So those are areas that we really like. If you talk about Boeing and Airbus primary structural programs, I’m not sure that’s going to be our future so much, those areas are very protected by the common suppliers. And we’ve had a couple of go rounds where we – one of the programs where we’re supposed to be honored, we were being encouraged, they did trials with our material, everything was told to be great and all of a sudden, well, you’re not getting. And we suspect what happens, the incumbent heard about [indiscernible] and did something to protect their turf. And we feel that in that area also the way we’ll get in could get in would be being very price aggressive and that’s just not our business model. So we liked these kinds of more military things space things, UAV things, the things that are being developed like these, eVTOL vehicles that are being developed by number of companies. So I would call urban mobility or something like that. So again, I guess the emphasis is more on these things rather than you sell large structural programs like Boeing and Airbus.

I’m sorry, Brian, did you say that you, you are shipping presently to Kratos at this point? A – Brian Shore: Yes, that was I think – I think a couple quarters ago, we announced the Top five customers, so they’re important customer.

Sorry, I forgot that. Thanks for that. I did not recall that. Then just the last question I have is just a technical question for Matt. So the cash in out dynamics as you have on Slide 11, as you said, Matthew, that $19 million transition tax installment payment is paid over eight years. So, I mean over that period, clearly the company will be generating free cash flow beyond the current year with the Newton, Kansas expansion. So that, I mean, clearly that’s a taxable it has to be paid, but it’s over a longer time horizon. So I mean investors should think about that $19 million as your cash that you could use today to deploy strategically, correct?

Yes. If everything is going right, we should definitely be generating cash from our operations over that period of time. So there is – in the near-term there is some availability of that, as long as we are confident that we’re going to have offsets to make sure we cover those taxes in the future. But we just want to lay it out that we – there is a commitment, and the 115 is really more of our starting point to generate to cash flows and use that fund of money to – for various opportunities make…

Understood. But the $19 million is a ratable payment over eight years, correct?

Yes.

Okay. Thank you very much.

Yes.

Okay. Thank you very much.

Seven remaining now.

Seven to go, yes, seven to go. Yes. Brad, is that over or maybe the quest on. Operator?

Our next question comes from the line – yes, we do have a question from the line of [indiscernible]. Your line is open.

Yes. Good morning.

Good morning.

Question about the special dividend in February because of the sales transaction, will that be considered a return of capital?

Oh Matt, I’m pretty sure, it’s not a return capital in this case, but could you backing up on that.

No. It wouldn’t be.

Okay. The second question regards redundancy. So I would presume the greatest natural threat in the Wichita area is tornado. Does it make sense to build the adjacencies build these for redundancy?

So it’s a good point, but actually that’s – statistically that’s not the case, it would be more like a fire that would be the biggest threat to factory. So even on Wichita area more likely to have a factory stores by fire and then tornado. So it’s a good point and it’s something we discussed and we had a way of pluses and minuses, but the pluses of having adjacent factory is much greater than any risk of one tornado wiping out to factories, pretty unusual thing, there have to be a right trajectory in the right path, highly unlikely. But if you notice the – even though there was a passageway between two factories, so we can use both buildings in an integrated way and that’s both for materials and people, it is two separate buildings of the fire door at the end of each passageway so that if there is a really big fire, one building would be protected. So it’s a good point and we certainly spent a lot of time thinking about it, we talked to the people at GE Aviation at some length about it as well, because remember this is just something that they wanted and they it’s hot just the GE Aviation, there is Airbus in Boeing, they’re the ones ultimately who really are very concerned about redundancy, it was okay from their perspective, but more importantly from our perspective, we thought that it was okay, we live in tornado country we’ve been around for a while there are, so it’s not a new thing for us and we think that we’ll be okay.

And my last question in this meeting and previous meetings. There’s been no mention of the Textron program on their aircraft. Is that…

Scorpion?

Yes, the Scorpion, has that – done two test.

What we decide – sorry, I interrupted, what was your question?

Where is that right now?

Okay, sure. I was just going to comment interesting that we just saw that one of the prototypes are flying by our plant last couple of days we take pictures of and videos we used a new airport for test flights. So you really need to talk to Textron about that or go on into the website. But my understanding is that all the – they built prototypes, they are flying prototypes, they did some test articles. But at this point from our perspective with the programs on active, my understanding is, and again, I feel a little bit uncomfortable because I don’t want to be doing disclosure for Textron. My understanding is, I just pointed doing more testing maybe for military and stuff like that, but mostly they have to – the objective is to sell the airplanes. I think the airplanes are fully developed and now they’re trying to get sales of the aircraft. So we’re sending by way now, but at this point, we’re hoping that they start to sell the airplane, we hope to get – they get a per sale and then we certainly will be talking to them again,

Thank you very much.

And I’m showing no further questions in queue at this time. I’d like to turn the call back to Mr. Shore, closing remarks.

Okay. Thank you very much, operator, and thank you all for hanging in there for, it’s a long call, I appreciate it. So that’s it, if you have any follow-up questions give a Matt or me a call. Have a great day, we’ll be talking to you pretty soon because our first quarter ends just in a couple of weeks, we’ll be talking to you again on our first quarter pretty soon. But have a great day. And like I said call us if you have any questions. Thank you. Goodbye.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day.