Good morning. My name is Michelle, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp First Quarter Fiscal Year ‘22 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there'll 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, operator. This is Brian. Welcome, everybody. Welcome all to our Q1 investor conference call. I have with me, of course, as usual Matt Farabaugh, our CFO. So at Park, we announced our earnings early this morning. You want to go check that earnings release, because in an earnings release, there are instructions as to how to access the presentation that we're going to go through now. In order to make this call more meaningful, you really want to have the presentation in front of you. The presentation is also available on our website, if you want to do it that way. So, what's interesting about this call is that it was actually less than two months ago that we talked before, so there's not a lot of new stuff. There are some new things, we'll give you some updates. And we're trying to make an interesting by not having everything the same. Some of the slides are actually almost identical to the Q4 slides, but we felt we kind of had to include them for perspective. Some of you may be totally on top and remember every line of our Q4 presentation, but I suspect most of us aren't on top of it. So some of the slides we're going to at least quickly go through just for the perspective. And like I said, they will skim through those, but they're there for perspective. The presentation could take like 45 minutes for Matt and I to go through. So just want to warn you partly, because we're including a number of slides from Q4, just for that perspective and context. Then, of course, after Matt and I go through the presentation, we will answer the questions for you. Okay, so why don't we get moving on Slide 2,…

Sure. On the cash investment yield, I’ll just let you know at the end of the quarter our cash and marketable securities were approximately $117 million, very similar to the fiscal 2021 year-end cash marketable securities. Park invests in highly liquid, high rated U.S. treasuries, agencies and corporate bonds. For Q1, our portfolio yielded 0.35%, so rates very low. This is reflecting the decreasing rates on investments and our longer-term investments maturing, and as they get reinvested, so far this calendar year, until just recently, treasuries as long as three years have been yielding less than that 0.35%. For comparisons, at January 1, 2020, treasury yields for one year, all the way through the three-year treasuries were all between 1.5% and 1.6%. Highly rate corporate bonds are a little bit better, but not much. Just to give you some perspective, last calendar year, our investments earned -- last calendar year, that is our investments earned on average 1.76%. For the trailing 12-months that just ended, they earned 0.91%, steep drop off. And for the first quarter, this first fiscal quarter, our investments earned 0.35%, as I mentioned before. That's how fast rates have dropped off. One year treasury right now will yield less than a 10th of a percent. Net investment income will remain very low until we see a recovery in short-term interest rates. So, moving on to the tax rate, our effective tax rate for the first quarter was 30.0%. This was higher than normal as we wrote down some deferred tax assets in Singapore, that we feel are not going to be realized. Assuming nothing unusual comes up during the year, the rate going forward, the effective tax rate going forward through the fiscal year should be closer to 27% for each quarter. Of course, a change in the Federal corporate tax rates could change all of that, and there's been a lot of talk about potentially bumping up the Federal tax rate. Moving to depreciation, depreciation will climb through the remaining quarters of the year as we bring online our expansion. For the full fiscal 2022 year, depreciation will be similar to last year's depreciation, it’s roughly $1.2 million. But it will start low and grow throughout the year, throughout the quarters of the year. Next year's depreciation will not all of our expansion assets for our online up and running the depreciation will increase somewhat significantly, as we have a full year of depreciation on all of those expansion assets. That's it from me, Brian, unless there's anything else you want to add.

No, that's great. Okay, thanks, Matt. All right, good deal. Let's go to Slide 7. We keep moving here. So this is just a slide that we've included before this information. Actually one of our shareholders said they missed it last quarter, so we decided we'll just put it back in. So I think you know the story, zero long-term debt and another recovery of $117 million in cash. And then we have dividend history $546 million paid since fiscal 2005 and we keep going. You can ask any questions about the dividend history, let us know, but when we just keep moving, so we don't get too bogged down, a lot to cover. Slide 8, this is a slide that's been come one of I guess standard for our presentation, so top for our customers in alphabetical order. So we have nice pictures associated with most of the customers. First is AAE Aerospace, that relates to picture in top right, and NASA Oriole program those are ablative materials we supply into that program. Next one is GKN Aerospace, look at top left to Boeing 787. GKN is a contractor and we supply to many programs through GKN, but we chose the Boeing 787 for this presentation materials for structural components is what Park supplies. Kratos, they're pretty common top five customer these days, and we usually provide a full picture of one of their drones, the BQM SSAT. And I think we've mentioned this before, but we believe that we're the main supplier of composite materials for their drone programs for the structures, for drone programs. And in the bottom right, actually, something little surprising, this is for Nordam. These are radomes materials, for the weather master radomes that are used for the 737 and 737 MAX. For Nordam,…

[Operator Instructions] We have a question from Brad Hathaway with Far View. Your line is open.

Hi, congrats on another very good quarter. I appreciate that you're not giving specific, long-term guidance. But I was curious in your commentary on the kind of 21% increase in Airbus versus your kind of prior long-term forecast? And I'm just curious kind of if you look, I guess, kind of business line by business line, how do you think just directionally most of what you're seeing compares to kind of what you previously thought in that forecast?

You mean like by segment Brad, is that what you're referring to?

Yeah, maybe I mean commercial military business and [indiscernible]?

Got it. So commercial is very dependent on of course when actually business aircrafts, very dependent on these GE Aviation programs. There are definitely other programs around for commercial and business. But those are the big dogs. The thing that probably drives commercial at this point more than anything else is the A320neo program, although the other programs are significant, and moving up. It's really hard for us to figure out what to make of these Airbus statements in the news release. There are some skeptics that say, well, doesn't -- was Airbus have to lose, they just want to get the supply chain ramped up and doesn't materialize, well, that's the problem with supply chain. I'm not in that camp exactly. I think that we should listen to what they're saying. And, we'll see what happens. But, that difference is a multimillion dollar difference between how our A320 tops out in the forecast we have from MRAS. Our forecast with MRAS is based on units. I think I explained that before. So we have the units for year. We know what the content is per unit. So it's easy to do the math and figure out what the revenues are. It's many millions of dollars difference. So we'll just say that just need a little perspective. The rest, we're just going to really want to wait and see. I think it's kind of weird situation, because some people are happy days are here again, and some people still got a little doom and gloom. And I think we're kind of in the middle and we're not sure what to believe and where things are going. We see some real risks, but then we see the upside as well. But, Brad, it's just hard at this point for us to rake a quantitative judgment that can translate into numbers in terms of top-line. And like I said, we think it'd be doing you a disservice by just kind of throwing stuff out there. Military, that's interesting. It's just something that we keep working on working on or working on. Every quarter, we give you some new pictures and new military programs, maybe not new to that quarter, but new to the presentation. And we feel really encouraged about military. I think it's a really good opportunity for us, especially in the niche areas where a lot of others just don’t want to bother too much trouble, it's not worth it. Those where the good margins are washed anyway. So, we're encouraged about military. That third segment business aircraft is largely going to be driven by that Bombardier Global 7500. But there are other programs, other business aircraft programs that we're on, that don't relate to GE Aviation. But that's -- let go off the big dog in business aircraft, if you want to separate into those three segments.

Got it. Great, that's helpful. Okay, so I guess it's kind of waiting to see whether these kind of 75 in 2025 from Airbus is a real number. Can you talk about that?

Sorry.

I thought you would [indiscernible]. Apologies.

Oh, yeah. Right. Well, we’ll wait just to follow up what you're saying. We'll wait to see what other comments come out from Airbus. And we'll just be watching what happens in the market. When you got an IndiGo entering lot -- kind of ordering loads of airplanes with these LEAP engines that's a plus, right. So, we got to watch and pay attention to pretty much everything.

And what do you think about the long-term potential for the Comac 919? I mean, how big a program could that potentially be for you?

My opinion is that it won't be the size with A320, but it could be significant potential. In the soul, we have a lot of content on those engines, and it has significant potential. Let's see what happens. We hope that they are successful in getting airplane certified and production at least for China. We hope they're successful in certifying it. In the rest of world, we're not sure what to make of the peace treaty between Boeing and Airbus, now that affects Comac. So, kind of lot of things going on that are hard to judge, but in terms of even the forecast, we have to memorize significant opportunity with a 919 to Park.

Great. And then finally, I guess, on the M&A front. So, it sounds like you participated in a deal, I mean – I was curious about the strategic investment in the aerospace and aircraft programs. Can you give a little more color on what that actually means?

What we're doing in other words, Brad?

Yeah, I mean, potential things you might do when you talk about these strategic investments, as opposed to like the joint venture.

Oh, okay. So just for a perspective, we did actually participate in the auction, maybe I think about a month or two ago. We got into, I guess, the second round, but then we decided to back out, because we had a kind of a -- I don't know, gut check, or whatever you call it come to Jesus internal meeting. And we determined, this is really a stretch. It's aerospace, yes. But it's so far removed from anything Park does. The synergy was just not there. And we say, okay, it's aerospace, but other than that, I mean, there is no way in which one on one equals two that we could -- sorry, equals one and two that we could figure out. What we have done, we decided to do I think about six months ago, we decided to target a specific aspect of aerospace materials, that's closely related to composite materials. These are other materials that are used to produce composite structures for aircraft. We thought it made a lot of sense. It has a lot of more synergy, technically, with what we're doing now. Also, polymer chemistry based -- I don't want to go too far, because it's still something we want to keep a little confidential. So, we did it was kind of typical thing. We did a survey, we came up with the usual suspects of 40-50 companies, and we started narrowing it down. I think we've reached out to about maybe eight or 10 of them. And not surprisingly, well some said, okay, well, let's talk and let's talk some more. And some well, we're not for sale, maybe they thought about getting back to us in two categories, one are independent companies, that's different owned by maybe an individual. And the other would be a sub or division of a very large company, very kind of different approaches to M&A these are very large companies, a contact of business development guy, okay, well, get back here, let's look into it with individual owner, got to be much more delicate and careful and respectful, I would say of the individual and their personal investment in the company, that kind of thing. And we're doing both. So it's harder, because it's not like we contacted any of them, that's oh, great you call because you're just about to put up for sale. That would have been unrealistic. So, it could take a little more work, but if we're successful, it'll be a lot better for Park, I believe, than just participating in something that's auctioned, which often is in aerospace, but other than that, doesn't really connect the parts business very well.

Okay, great. Thank you very much. Appreciate all the color.

Sure. Nice talking to you.

[Operator Instructions] Our next question comes from Christopher Hillard with UBS. Your line is open.

Hi, it's good to speak to you all.

Hi, Chris.

It's great to see the strong profitability embedded in your outlook. Wanted to ask, as you look out maybe a little bit farther, without giving guidance per se, are there aspects or other ways in which the business has developed where you anticipate either greater efficiencies as you, for example, expand your capacity with the latest production technology, or are there areas where you see maybe the margins be a little bit more challenged, because you've gone through this whole supply chain disruption, the need to maybe carry higher inventories? I'm curious if there's any developments in how you're thinking about your opportunity to capture margins in the medium term?

So efficiencies, I know, with expansion, for instance, I don't know about that. I'm like, I don't think we're expecting anything significant in terms of manufacturing efficiencies. I think our man -- I think are already pretty efficient. Actually. I know, that's a little bit of a dangerous thing to say, because you always want to look for opportunities to do better. But I think we have a pretty lean pretty low cost structure. I think it's an appropriate cost structure. But it's also pretty lean, pretty low cost, a pretty low cost structure, from where you're factoring. And costs, that's a concern we pass on. We get raw material increases, we often pass them on. In some cases, we have long term agreements, which require the supplier not to give us increases, some things we can pass on, some things you can't pass on, like supplies is an example, where we just have to deal with it, you know, labor costs or utilities. So we hear a lot of talk, news about inflation, and we should receive it. I mean, just the airline costs, the travel is much more than it was say, six months ago. So some of these other costs are going up. And to some extent, they'll be contained and some extent may not be. But it's something we have to watch for. In terms of maintaining more inventory we'd like to maintain cushion inventories, but we're not able to because of these big components that I said, we're having some concerns about supply. They have the same forecast we have. So if we say want to order more, they just say, we are not going to give you more, we're not going to give you more than in your forecast. We'd like to be able to maintain a cushion inventory. But it's pretty hairy, I guess, I would say, and it's a battle every day to manage the inventories. If we could, if we could increase our mentors, we would. I don't believe that would increase our cost structure very much, and in fact our balance sheet, but I'm not sure how it would increase our cost structure very much in itself, just by increasing our inventories.

Okay, then maybe one more, given that your domestic manufacturer, particularly as it relates to your military business, does he desire to have more domestic production and onshoring come into play in any way with your existing portfolio of products? Or maybe how you're thinking about M&A opportunities?

Yeah, I wouldn't. I'm not sure about the M&A part of it. But I believe that the fact that we are one of two domestic manufacturers of composite materials for aerospace, it does help us in that regard. It gives us more opportunities to develop additional military business. So we'll have to see how that plays out a little bit. There's certainly a lot of talk about it. But I think to the extent it's a factor at all, it would be a plus.

Great, thank you for your time today.

Sure, Chris. Thank you for your input.

There are no further questions. Let's turn the call back over to Brian Shore for any closing remarks.

Thank you and thank you all for hanging in. This was probably the record in terms of long calls ever done. As I said at the beginning, little difficulties we felt we needed to include some of the slides from Q4 for perspective and made the getting to the presentation -- it just took longer. But anyway, thanks again for listening. We really appreciate it. Call us anytime. You can reach out to Matt or me anytime you want. And otherwise, have a great summer and we'll talk to you soon. Have a good day.

This does concludes the program. You may now disconnect.