Park Aerospace Corp. (PKE) Q1 2022 Earnings Report, Transcript and Summary

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, is our forward-looking disclaimer. If you have any questions about it, just let us know. Slide 3, we assessed a New Year table of contents. So, the first thing Slide 1 is the presentation. Appendix 1 is supplemental financial information, which is something we've included in our presentations for several quarters now. Appendix 2 and Appendix 3 are new environmental and community considerations, diversity on a workforce. These statements, Park statements were actually posted on our website. I think maybe early June, we put them up there. But, because we suspect that a lot of people aren't aware of every listing when it goes on our website, probably don't check it every day. We just wanted to attach these two statements as dependencies to this presentation, just so we bring it to your attention, so you're aware of that. You're aware of them. We don't intend to go over them during this call. But we wanted to put it out there, so you can see them. And like, anything else if you have any questions or comments, please let us know. Okay, let's go to Slide 4. This is going to take a little bit more time to go through. So, why don't we start with Q1, the numbers, sales $13,594,000. And let's just compare that to Q4 for a second, because this is an important perspective, Q4 was $14,441,000. But remember, we covered this, Q4 included $3.5 million of that essential component. We keep talking about that for missile programs. So basically, that's a pass to where we had a relationship with a supplier overseas. We buy this product, and we sell it to some of the customers and we charge a markup, but there's no production involved, and very low margins involved. So really, if you want to get apples-to-apples, you might want to subtract about $3.5 million from $14.4. So that's approximately $11 million for Q4 compared to $13.594 million . Until you want to look at up and just offering out for perspective, gross profit $5 million for Q1, $5.472 million, and gross margin 40.3%, which to us is something -- I don't remember seeing that maybe ever over 40% gross margin, it's quite good. We normally don't like it when our gross margins go below 30%. So above 40% is quite good. The adjusted EBITDA of $4.1 million. I don't -- $4,104,000. I don't remember how long ago was that we had EBITDA above $4 million in a quarter. It's been a while anyway, you can look at the historical quarters, you don't see anything even close to it. And 30.2% adjusted EBITDA margin also quite good, and look at the history, you're not going to see anything like that. So, let's see, what do we say about Q1 during our May 13, 2021 Q4 investor call, when we say about it, we set our sales estimate was $13.3 million to $13.8 million. So, our sales came in right in the range, which is good. That's what we want. And I'll explain that - what I mean by what we want in a second. Adjusted EBITDA estimate was $3.6 million to $4.1 million. So, we came into the top on the range, but let's say we're still within a range by – well, we're just at the top of the range. Now remember, our forecast philosophy to remind you of this but every quarter is, we don't play this what we consider the end game where we give you numbers that we know we can beat, so we can be heroes. We think that's kind of silly, it's insulting to you. And plus, it violates one of our principles, which is we always tell the truth. And as we know, we could be wrong, we could make mistakes, but if we believe something, we're going to tell you. We're not going to tell you, we believe ex, we're going to tell you ex minus 3% or something like that, so we can be heroes. We know a lot of companies do that and probably almost all of them do it. But that's not for us. So, we just want you to understand that. So, we give you an estimate, prediction, this is what we think is going to happen. We could be wrong, but that's what we think is going to happen. We're not shading it to look like heroes. Certain factors which affected our Q4 and Q1, sales and margins – in Q4 sorry were mentioned that there was a $3.5 million in sales of the essential component. For missile programs, very low margin, just a markup. And Q1 actually was the other side of the coin, the other side of the equation, approximately $1 million of sales of materials for those missile programs. Those are very high margins, so you see the flip there. Eventually, all those essential components will be used and produced into prepreg and sold at good margins, at least that’s the expectations. In Q1, other factors favorable product mix in some respects and also cost factors, which were favorable for Q1. But that's only part of the story. First of all, there are no real unusual items or nothing special, unusual that pushed up the bottom line for Q1. Like we just said, good mix, we had those sales of the – we call it ablative materials or materials for missile programs. And just want to highlight, we'll get back to this later that there was a very steep GE ramp with no extra people. So, it's easy to say, oh, it's a good mix and stuff like that, but somebody had to make it happen. And that's our people making it happen. Also with relatively low waste, you increase your production by significant amounts, actually compared to Q3, or Q3 compared to Q1, 4 times GE program sales, 4X, that's a very, very steep ramp. And our people handled it and handled it really well. So, Q1, we won't see those kinds of gross margins and EBITDA margins for at least next couple of couple quarters, but it does give us some perspective on what's possible. Now, cost side we need to hire people. We haven't, as you'll see from the presentation, we haven't been successful on that, but we are still planning to hire people. T&E will increase as one example, of course increasing because with the pandemic, we were willing to travel when nobody was willing to see us. We go to call customer, well, we're not there, we're all home, so, hard to visit a customer when they're not there. But we're hoping that will recover. So, there's going to be some increase in costs as we go forward, which is what we want, a good thing. Let's go to Slide 5, this is just historical perspective. Look at those gross margins, nothing close to 40%, and EBITDA margins nothing close to 30%, even during those so called good years, like fiscal 2020. So enough on that one, let's keep moving. Slide 6, okay. Matt's going to take over on Slide 6, so go ahead, Matt, please help us out with Slide 6.

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, we also supplied Nordam through multiple, multiple programs. We thought we'd select the 737 MAX just for a change of pace. And a little bit of a Boeing orientation here in Nordam. At Middle River, at MRAS, we got plenty of coverage about them, so we don't need a picture for them for sliding. Let’s go onto to Slide 9, kind of interesting, I think that looks like these are the pie charts, which I think are interesting, Park’s estimated revenues by aerospace market segment. But what's interesting is Q1 of fiscal ’22 is starting to look like fiscal 2020. Obviously, fiscal ‘21 was big difference with commercial being way down and military being up. But now looks like we're kind of returning more to the pattern of fiscal 2020. Let's move on Slide 10. Park loves Niche Military Aerospace Program. This is another standard slide that we have and we're using in the last few presentations just as a project, as well as the top five for Don and Elaina [ph]. They always select the interesting programs to talk to you about. These programs aren't necessarily big or small, they're just programs that we think would be of interest. Let's just go through Raytheon MK 56 Guided Missile. That's a new program for us, we supply ablative materials into that program, Lockheed C-5 Galaxy pretty -- aircraft has been around for quite a while. And we supply materials, various structural components. The Boeing Apache helicopter materials for secondary and primary structures. The Textron Systems Shadow which is a drone, obviously, materials for aircraft structures, we’ve been on this program for a while with multiple variants. And here's something interesting, Airbus C-295 materials for interiors. We consider radomes, rocket nozzle and drones to be kind of niche areas for Park in the military part of our business. Why don't we keep going, Slide 11. This is just a teaser for you. Like I said, we're going to try to make this a little interesting. Launch is planned for the James Webb Space Telescope, November 2021. And going where no man or woman has gone before, that's I think from Star Trek. This is a program that we feel really, really pleased and privileged to be on. We'll probably do more of a detailed discussion of the James Webb maybe when we announce Q2 since the launch is going to be in November 2021. But we thought we'd provide this as a little bit of a teaser for you. So why don't we just keep going, a lot to cover, like I said. Slide 12, are the update on our major expansion of our Newton, Kansas facility. Total budget $19 million, spending to-date $16.5 million, spending to go we can do the math $2.5 million. The expansion is based on complete, some bric and brac still are coming in, but the expansion is basically complete. Manufacturing trials expected to begin later on this month. Qualification run is expected to begin in September of this year. Just one little caveat there, we've discussed this over the last couple quarters, but we continue to be challenged with our supply chain raw materials. We continue to fight the battle every day. So we're going to have to see if we feel we have enough raw materials to actually do the qualification, and trial starting in these dates. Because what we don't want to do is start qualifications and trials, and then not be able to produce for production, that would not be a good choice. So we'll have to see what happens. This point though, this is our plan. And the last item, I think important, we pushed forward with our major expansion when many others were slashing their capital spending. Good thing we did. Good thing we did, because we'd be in a world of hurt right now, if we didn't do this. Remember, we'll cover this later. This was originally supposed to be redundant facility for the GE programs. But if we hadn't done this expansion, especially based upon the indications that Airbus is giving about the A320neo program, we've been a world of hurt right now, because you don't do an expansion going to qualified in six months. That doesn't happen. So it was very good, we did this in very good which talk to our guns and didn't falter and flinch and went ahead in completed this expansion. Some pictures, and a bottom right picture is Donna, with the door opening and kind of welcoming us in, saying come on in expansion is complete. That's their front entrance, so good. Let's go on to Slide 13. Slide 13 is really just going to review slides or cover it quickly. Like I said, we're including this slide for perspective, maybe some of you don't remember everything we covered during Q4. This relates to single eye on particular higher jet fuel prices and environmental concerns provide extra motivation for airlines to move quickly to replace less fuel efficient legacy single-aisle aircraft with more fuel-efficient modern single-aisle aircraft such A320neo family. Look at those crude prices, they go up and up and up. I know they're down a little bit unless day or two, but they go up and up and up. And that means motivation, motivation, motivation for these airlines to replace their less fuel-efficient airplanes with more fuel-efficient airplanes. Remember, at the beginning of pandemic, we said oh boy, these crude prices are so low, there's not much motivation. Motivation is very big right now. China doing quite well with domestic aviation, a little bit of setback with COVID outbreak and lockdown in Guangdong Province, but they're still at the level they were at the pre-COVID. They were actually even more than that now they're kind of back to that level, so still very positive for single-aisle. And domestic translates to single-aisle, international translates to wide-body. U.S. domestic aviation recovered to approximately 84% of pre-COVID level, that’s based on a report I read recently. Full recovery expected in 2022. I haven't heard to some airlines and saying they expect full recovery by the end of this year, very positive for single-aisle sales. And although, it has a way to go, European domestic aviation starting to recover, positive, that's also a positive sign for single-aisle sales. You probably read this United just did a huge single-aisle order. That's all good news and good indications. That was not only for the A320neo, that was for the MAX as well. Single-aisle aircraft place to be in commercially in commercial aviation, at least for now that's our opinion. Let's go on to Slide 14, we're continuing the same theme. Now these are two new items though, so let's look at these. U.S. and European Union resolved their 17-year long trade dispute involving subsidies to Boeing and Airbus. Okay, we all read about that, I think. But this is kind of interesting. I feel a little strange. According to the U.S. trade representative, “we are finally coming together against a common threat”, and she mentioned China. I thought that was interesting comment from her. And then the next one, Boeing recently stated it is in no hurry to develop a new single-aisle aircraft dubbed the 5X to compete against the Airbus A321XLR. Both those were a little surprising to me. So we'll circle back on both those points throughout the presentation if that's okay. Slide 15, we go through this slide pretty much every quarter. Remember, we have – this is GE Aviation Jet Engine Programs. Remember, we have the firm pricing LTA, it's a requirements contract from 2019 to 2021, with Middle River Aerostructure Systems as MRAS, a sub of ST Engineering Aerospace. Let me just remind you that MRAS was a sub of GE Aviation, and that's why all the programs run through MRAS or GE Aviation programs. A couple years ago, GE Aviation sold MRAS to ST Engineering Aerospace, which is a major aerospace company based in Singapore. Redundant factory construction really should say basically complete, now nearing completion. So that's on us, we missed that one. But remember that that was our deal. Once we entered into that LTA, we agreed, okay, we're going to go ahead and build a redundant factory, and we're people of our word so we went and did that. But as I just said, it's pretty darn good. We did it because we'd be in a world of hurt right now, if we hadn't done that. Not for redundancy, but for capacity. We're soul source on for composite materials, for engine nacelles and thrust reversers from multiple MRAS programs. The first let's see those are five. Our A320neo family, Boeing 747, the Comac 919, the Comac ARJ-21, which is a regional jet, and Bombardier Global 7500. You can see some of these problems that we have sole source for lightning strike material as well top right. Park composite materials are also sole source and primary structure components for a Passport 20 engine for the Global 7500, but that's not part of the MRAS LTA. The picture of the legendary Boeing 747 engine nacelles, I love this picture because it gives you perspective as to how huge these things are. And everything you see here is made with Park materials in terms of the nacelles, also the stuff inside thrust reversers and its structure which you can't see. Let's go on to Slide 16. Let's do a little bit of update on a GE Aviation program. Some of this is just review, some of its new. Let's start with the A320neo family, the aircraft that's the big Oona [ph] for Park anyway. So the first couple of items we covered during our last Q4 call, currently at a rate of 40 going to 43 by Q3, and 45 by the end of the year. And that was confirmed by the Airbus’ CEO during investor call on April 29. He also mentioned a steep ramp in ‘22 and ‘23 for the single-aisle airplanes with the A320 family. Then, this is not in April -- sorry, May 27, 2021 [ph] news release from Airbus. This is just probably from news release. So this is an easy one just direct “A320 Family: Airbus confirms an average A320 family production of 45 aircraft per month by Q4, 2021.” Okay, that's consistent with the prior items, and calls on suppliers that means us to prepare for the future by securing a firm rate of 64 per month by Q2 of 2023 in anticipation of continued recovery. Airbus is also asking suppliers, meaning us, to enable a scenario of rate of 70 by Q1, 2024. Longer-term Airbus is investigating opportunities for rates as high as 75 by 2025. Let me just explain what 75 means, that 75 would represent 21% higher than the peak of our long-term forecasts that we're using. That's very significant if it pans out, both in units and in dollars. And let me go to the next item, because it kind of is important that you understand how we get to that 21% number. Next item on Slide 17, continuing, as of the end of May 2021, CFM, meaning LEAP-1A engine had a 60%. It's actually I think about 60.4% share of firm orders for the A320neo family of aircraft. The source of that is Aero Engine News. So A320neo, two engines are on the A320neo, the LEAP-1A and Pratt engine. So this is saying that in terms of firm orders, this is not forecasting, this is not speculation, this is not some smart guy who thinks we knows what's going to happen. This is 60% of firm orders. So when we do the math, we use 60%. And that may not pan out, but that's what we use, just want you understand that. So we say that 75 in the prior page translates to a 21% increase over the top of our forecast where it peaks, that's based upon assuming a 60% share for the LEAP-1A engine. Okay, let's keep going on Slide 17, another little interesting thing. On May 21, 2021, CFM and IndiGo, India's largest airline announced that IndiGo selected the LEAP-1A to provide power an additional 310, A320neo family of aircraft, representing CFM’s largest order ever, by number of units. And what's interesting here also a little side note is India's had some trouble with COVID, as you probably know, recently. So it's been a setback for its commercial domestic aviation industry, but these people are smart, so they are going ahead. So they're going ahead and ordering these airplanes with these engines, which is obviously good for Park. Then last point on Slide 17, Airbus recently announced it is resuming work on a new assembly line in Toulouse for A321neo aircraft. Airbus announced assembly, the assembly line is scheduled to be operational by the end of 2022. Why is that significant? So some people look back at the last item on 16 and say, oh, yeah, Airbus, they're all talk, they don't really mean it. But maybe this is Airbus, saying they're not all talk, and maybe they're putting their money where the mouth is. I tend to listen to Airbus, I'm not -- I think they're smart people that we're talking about. Just an example, last year, they were saying we're not going to go below 40%. And, lots of these smart analysts and commentators, oh, it's not going to happen, are going to go above 40%. So we didn’t know what's going to happen. We certainly paid attention to Airbus when they said we're not going to below 40%, and they never went below 40%. So we'll see what happens, you never know. But I just wanted to give you that perspective. There is a nice picture of A321neo with the LEAP-1A engine on Slide 17. Let's go to Slide 18, let's talk about this A321XLR. So some of this, we covered, some of it is new. First test aircraft nearing final assembly. First flight expected next year. Certification and entry into service, that's 2023. That's like tomorrow in the commercial aviation timeframe, like talking about dog years, two years is nothing. And they've been saying this, they're not backing down. So that's pretty important. Is this going to be a game changer? A lot of people say yes, it might be, because the concept is that this airplane can replace wide-bodies on many missions, with much lower costs. So here's a key question, is this single-aisle 5000 plus statute mile range, 225 plus seating capacity market being ceded to the Airbus A321XLR by Boeing. Boeing said, they're not in any hurry come up with a competitor. I know what that means, I'm just telling you what Boeing has said. But either way, this is I think will be a pretty -- my feeling is this is going to be a bigger plane for Airbus and for Park, and we'll see what Boeing does. And we'll just have to see. I'm just telling you what Boeing has said. I don't have any inside track in a Boeing, I'm not inside guy of Boeing, I’m just telling what they said. So I'm a little surprised about that, like I commented previously, but nevertheless, that's what they have said. Let's go on to Slide 19, continuing with the updated GE Aviation Jet Engine programs. The 919 this is a Comac airplane that's designed to compete against the MAX and A320. It's a single-aisle. Comac continues to maintain they intend to certify and begin deliveries of the aircraft before the end of this year. So we'll see what happens. I think originally it will be for the Chinese market, but they intend Comac Chinese, they want to be role players in commercial aviation. So, as compared to the original jet, which is really kind of a China airplane, they want this to be an airplane, not just for China, the 919, they want this to be an airplane for the world. Meaning they have got to serve by the FAA and EASA, that kind of thing. But I think it'll begin with a Chinese certification delivery into China. This airplane could be a pretty big opportunity for Park once it gets going. But here's a couple of questions. How will the recent peace treaty between Boeing and Airbus intended to deal with their “common thread” affect Comac and the 919 program. I don't know. I mean, it's a good question. I sense it will not affect the domestic sales, Chinese domestic sales. But we'll see what's going to happen here. It's kind of I think, a strange development. And I think it was strange that the U.S. trade representative was so blunt about the intentions about this peace treaty. Then the other thing is Comac recently reiterated plans to complete a development of domestic engine alternative to LEAP-1C engine for the C919 by 2025. So, what I would say about this is that, in my opinion, it's much more difficult to certify an engine than an airplane. Certifying an engine is a big, big deal. Engines are very complex, and a lot going on with engine. So we'll see if that happens. Maybe it will, maybe it won't. Slide 20, still going with the updates on the Global 7500 and the ARJ-21. We've been saying these programs on a ramp mode for the last couple quarters, that's based on the forecast we've been given. But now the nice thing is we're seeing it in the order patterns with the Passport 20 for the Global 7500, even beginning and with the ARJ-21. We're actually starting to see the new order patterns, nice pictures of these airplanes. So that's good news. So let's go on to Slide 21, and last but definitely not least the Boeing 747-8, Boeing announced that it will terminate production in the Queen of the Skies in 2022. Long Live the Queen, to me this is a very, very special airplane. And we got pictures of Legendary Boeing 747, the Queen of the Skies in Real Life. Real life means that these pictures are all taken at Anchorage airport, and all taken by me from the cockpit of an airplane in my airplane. The top pictures I was taxiing behind these airplanes, by the way, you don't taxi too closely behind a 747. And just in case you ever have that experience or have that option, don't do that. And the other one is just the middle picture is the airplane landing right in front of me I was holding short of the runway. Slide 22, this is all review. And I wanted to include this slide because it kind of gives – I like the pictures Donna picked out for this slide. But here's some perspective on just how bad things were with commercial aerospace last year. I'm not going to go through each item. But everything we heard about commercial aerospace was negative. But I'll cover the last item aviation analysts and commentators predicted full recovery would not come for many years or may never come end of days scenario. We use that term again in the presentation. Let's go on to 23 continued. This is all review, at Park, we didn’t completely buy the doom and gloom news. We didn't buy the end of days were at hand. We have made our deal with MRAS to maintain minimum baseline critical mass production. We discussed this so many times, we won't go into the details. But I’d just say critically important to Park and MRAS. If this didn't happen, we would be in a world of hurt, MRAS would be in a world of hurt. And guess who else will be in a world of hurt, MRAS’ customers, because we allowed our production to go to levels where we couldn't recover. And there would be big problems not just for us, but for MRAS and the customers. And I don't know what we would do about that. And then the last item, even though lay-offs were widespread pervasive, we didn't lay anybody off. We’re very happy about that decision. And it also was very important to Park is that we laid off people we'd be in a real world of hurt right now. You'll see later on, we're having trouble hiring people but if we laid off people, we'd be in a real world of hurt right now. So good thing we didn't do that. Slide 24, continuing with this year in review. We spoke at length during all four calls in 2021 about the significant divergence from the mismatch between this minimum baseline, critical mass, and the then current end market requirements for the GE programs. We talked inventory destocking. We said can’t destock below zero. We don't use negative numbers for inventory. I don't think app allows that. And divergence was mathematically unsustainable and just pure math. And unless there was some dramatic step down day of reckoning was going to come. And well it came, destocking has ended at least for the programs we're on. Let's go to Slide 25, you're trying to hustle through. So the first item we covered this before. The second item, interesting perspective. I think, we alluded to this right at the beginning. In Q3 of last year, GE program sales $1.8 million, Q1 of this year, $7 million, that's about a four times increase in two quarters, that's a big deal. That's not just talking about forecasting. This actually happened folks, as we talked about these programs ramping up that did happen. That's not just forecasting or somebody's opinion. This is just facts. Let's go on to Slide 26. So Slide 26, we're continuing same theme. So we talked about this, we received updated long-term forecasts from MRAS. And if you look at long-term forecast, basically very similar total numbers through the 2029 calendar year as the pre-COVID forecast. Now, we have an opinion about this, though, it may not fully capture the upside, why? The steep ramp up of the A320neo aircraft family production discussed by Airbus in their May 27, news release, we referred to in Slide 16. And then significant potential XLR sales opportunities, especially in light of Boeing's recent statement about not being in a hurry to develop an aircraft to compete against the XLR, that was mentioned on Slide 14. These two may be together maybe this significant indication by Airbus some significant upside may be related to the XLR and their optimism about the XLR, I think in prior quarters, I mentioned that it didn't seem like our long-term forecast that we're receiving from MRAS is fully capturing the XLR opportunity. So point is that there is significant upside, and we already mentioned that when you're talking about 75, that represents 75 per month, that represents a 25% increase over the peak of the forecast we've received from MRAS for the A320neo. An important question, though, keep coming back to is, how the commercial aerospace manufacturing supply chain respond to the steep ramp. This is more of a short-term consideration, I mean eventually catch up, but nevertheless, a very important consideration, and a lot of talk about the supply chain struggling and we see it as well. Slide 27, how is Park responding to this to the GE Aviation programs ramp up, all about our people? Park’s current people count 105, like what the heck is going on here. People still getting paid not to work. So how do we do that? How do we do that with GE programs going up by four times since Q3? And by the way, Q3, if you look at the presentation for Q3, that was 107 at that time, down to 105 now for Q3. We said, we announced Q3, we plan to add 15-20 people, what happened? So we didn’t think it’s done, very difficult to hire people right now, again, it's very important we didn’t lay anybody off. And we've been on time and relatively low waist with an incredibly steep ramp that we had to handle with less people, not more people, less people. So Park’s people are stepping up getting the job done. That's what Park people do. They're not Park’s people aren't being an exclusive one and just get the job done. Thank goodness for our customer flexibility program. We talked about this every quarter. I can't emphasize enough how important this is ramping down, ramping up gives us this flexibility that is very significant. It's just a godsend. Without this program, I think it'd be very difficult for us to get the job done. It's a big deal. On Slide 28, let's continue here. Thank goodness we did not lay anybody off, I think we already covered this, even the darkest days of the commercial aerospace industries, Armageddon in deep. You know what right now if we laid people off. We only have 105 people. I think we'd be at a point where we couldn't even get it done. Thank goodness for Park’s right people, without them would not be able to get a job done. I can't say that enough. Park is fortunate and blessed to have the great people it has. I can't say that enough. And just so you know, every Park person including Matt and Brian receive a $250 bonus for their dedication and outstanding work during fiscal first quarter. So let's go on to Slide 29, a little bit busier here. GE Aviation program sales history and forecast estimates, the top of the page is history of Q1, $7 million. I think we already alluded that. And during our Q4 call, we predicted $6.5 million to $7 million, so we came in just at the top of that range of our prediction. Now let's look at the forecast. So Q2, for GE programs are forecasting $6 million to $6.25 million. The previous forecast we gave you during Q4 was $6.5 million to $7 million, so we brought those numbers down. We'll talk about that in a second. Q3 and Q4, those are new, we hadn't given you forecast for Q3 and Q4 previously. The fiscal ‘22 total that's unchanged, $26 million, $28 million, that's what it was before. So short-term, let's talk about what happened in Q2, why bring the numbers down? Short-term, it's always difficult to nail because of inventory practices, which can move things from quarter-to-quarter. And also, I'd mentioned before that MRAS uses a company to manage inventory. So there's multiple layers, you have MRAS as this company. And it's difficult sometimes for us to see through. We get inconsistent information, not that anybody's giving us information and that didn't leave us correct or misleading us, it’s just that is complicated. So we do the best we can. We work at it real hard. But all we can do is kind of guess a little bit. Ultimately, what matters? The only thing that matters long-term is nothing to do with this. It's how many A320neo that Airbus produces and sells, how many Comac 919s that Comac produces and sales, how many Global 7500s that Bombardier produces and sells, that's what matters long-term that will be moved with quarter-to-quarter, but long-term that's what matters. And we pay a lot of attention to the inputs we get from the OEMs, which are not we get it directly just public statements. But as I said, we're not changing the forecast for the year. And just, we believe there are some upside potentials based on some of the indications that we're getting from some of the OEMs. But last time in supply chain risk the forecasts. We already mentioned that. I'll mention it again, and probably mention every quarter now. It's something that's a battle daily battle we have to manage. So far, okay, but, razor kind of thin, okay. Let's go to Slide 30, this is now Park’s financial performance history and forecast estimates little more involved here. So the top of the page is history just for perspective. You already know the history, so we don’t want to spend a lot of time on that. Certain factors which affected Q4 and Q1, we’ve already talked about that. That's the $3.5 million of essential components for the missile programs in Q4. $1 million of sales of missile program materials in Q1. But we haven't spoken about this in Q2, approximately $1 million of essential component sales, all those sales in the very low margin. So just want you to be aware that for Q2. Now, for Q2, what we did, we gave you a forecast to Q2, we asked you for and we brought you to down the top-line was $14 million to $15 million, now it's $13.25 million to $14.25. The EBITDA forecast previously was $3.3 million to $4, now $3 million to $3.7 million. Basically, what we did we worked you to down the company to down the revenues, or sales by the reduction in the GE forecast for Q2, we just kind of passed that reduction through. So not a lot of brilliant math going on there, pretty straightforward. Let's see we have not changed the forecast for the fiscal year though, at this point. We have no reason to do that. But see, we’d also want to talk about here. So one of the risks we talked about this a little bit, but we probably want to talk about again, international shipments and transport that's a risk for Q2. These are shipments Park shipments to customers that are overseas, international shipments have become more and more challenging. So we might be ready to ship something. But if the shipping company is not ready to do it, it's not a sale until we ship. We have costs that are elevating or escalating, I should say. Some costs are covered. We passed them through some costs are locked in. We have long-term agreements with suppliers, and some may not be there are the supply chain risks, we talked about that, with respect to GE and also with respect to Park. And then there's cost we talked about this earlier. We're hiring people and we have T&E that will probably go up, so we just want you to keep those things in mind. Q1 was a little unusual and in that respect we weren't able to hire people and the T&E was still pretty low because we weren't able to travel very much to see customers. We're also concerned about risk to the economy, inflation, concerns about our economy and our country. We need to keep our heads about us. As we say, we didn't by the end of day scenario last year with a pandemic, but we don't necessarily buy the happy days are here again scenario either. Was it Greenspan irrational exuberance, or something like that? I think that's what he said. We're concerned about that. And we're just really paying attention carefully and watching carefully. And the most important thing for Park, we lose our head last year, let's not lose your head this year. Let's not get caught up in the irrational exuberance stuff. I think as we think there are some risks and concerns about the economy, and maybe in our country, generally. A long-term forecast, few of you have asked us when are we going to raise the long-term forecast, obviously, not now. Maybe Q2, but probably I think more likely Q3. And there's a thing, as we just went through, there's still a lot of risk, a lot of uncertainties. We don't want to give you a forecast just push numbers out there. Obviously, no forecast is guaranteed, but want to have some reasonable confidence yeah, these numbers look like the reasonable numbers. Until we get there, it doesn't make sense just put numbers out for you, which kind of doing a disservice to you and it's insulting to you and give you numbers that we don't really believe in. Not that they're guaranteed, but numbers that we feel are reasonable. So we'll see. That's our feeling about the long-term forecasts. Slide 31, update on acquisitions, other strategic investment activity. Sorry, I know, it's going really long, but we'll try to hustle through here. Banker led auctions, we're still trying. We did one, we participated one recently, we got the second round, and we backed out. The reason is it's often not what we want, these are aerospace companies, but that's not enough, it has to be something that makes more sense for Park. And also, we're competing against this cheap and easy money, which makes it even more difficult. We're not going overpay just because there's a lot of cheap and easy money out there. What do they say, we've got to keep our heads about us and not get caught up in the mob mentality or hysteria. So what we're doing is strategic targeting of aerospace industry and market segments, and product lines. We think this makes much more sense. And we did a lot of work on it. We've identified segments, we reached out to product tenure companies, this is more difficult. Why? Because we don't want to launch it, guess what the company's for sale. We start contacting companies that target market normally not for sale. So we have to open the discussion up and take some time and be patient. JV, still working on them, and potential strategic investments in key aerospace and aircraft programs, that's something that we are pursuing a number of different programs. We reached out to OEMs and we will see what happens, but we think that's an interesting opportunity for Park and in some cases I think they even reached out to us. Why don't we keep moving here? Living in strange times, these are our final slides. So again, apologize for the very long time on the presentation. Strange days have found us, I think that's from the doors. And people are getting paid not to work, free money being forced fed into the system. In the old days, people believe work was something honored and valued, it gave the person self-respect, self-reliance, dignity, but now maybe not. Free money used to be that you worked hard, you sacrificed, you were frugal with your money. And one day this is not a person or company, you'd be able to use that hard earned money, because that's a real value that's something important for a company. But now it's just use the cheap and easy money. It doesn't work out really doesn’t matter because it never was really your money anyway. So it's kind of sad actually. And, why bother to work hard and sacrifice because why do that, why just happen to do the cheap and easy money. It's kind of tragic in our opinion, but the way I like – sorry continuing to roll seems upside down and backwards to us was supposed to matter doesn't what was not supposed to matter does. But at the end of the day, at Park we're not philosophers and politicians, we work for a living. We keep pressing forward, we do not stop. We do not back down. We do not relent. We just don't do those things. It is not in our nature. As I said at Park, we work for a living not philosophers or politicians. And at Park, we make money for owners. Those are two old fashioned concepts that we still believe in. Let's go on to Slide 33. Our family, our Park family sticks together. We take care of each other. We honor the one we lost. We will not forget ever. Park is a strange and unusual company, filled with wonderful and special people. We're very fortunate when it comes to our people. At Park, we're not like the others. We play for keeps [ph]. We're not fooling around hoping to make an impact. We always end our presentations with a picture of one of our crews or teams. This is our Q1 production lab team. The top row Bailey, April, she's actually QE now, Aaron, Leo, who's known Leo for a while. Great guys, he is a second shift supervisor, Halle, Patricia. Front row, Nancy, she's first shift supervisor. Taylor and Scott didn't make the photo up. And if you know anything about our business, you're probably saying, well, where's everybody? No, sorry, this is it. This is our production lab crew for our Q1. This is all we had. And we've hired two people since Q1, so when you say, my god, how did we get stuff done. Production lab work for kind of business is quite complicated, quite involved. As part of the production process, just like manufacturing is critical. We can't ship product to customers until it's been tested. And sometimes the test is very complicated, involving multiple steps, involving multiple days for sure. But these folks are all multiple job category approvals under the customer flex program, and they all stepped up. As I said, if it was not tested, it's not shipped, and we shipped everything. A great job by these great dedicated Park people. Thank you very much to these people. And that concludes your presentation. Thank you. Operator, hopefully, some people -- somebody is still listening which we are ready to take questions now.

[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.