Park Aerospace Corp. (NYSE:PKE) Q2 2024 Earnings Call Transcript

Park Aerospace Corp. (NYSE:PKE) Q2 2024 Earnings Call Transcript October 6, 2023

Operator: Good afternoon. My name is Alicia, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Second Quarter 2024 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will a question-and-answer session. [Operator Instructions] At this time, I would like to turn the call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Brian Shore: Thank you, Alicia. So welcome, everybody. This is Brian, of course. Welcome to our fiscal 2024 second quarter investor conference call. With me, as usual, Matt Farabaugh, our CFO. Make sure you are accessing the presentation, we announced our earnings just a little while ago and there are instructions as to how to access the presentation we are about to go through. Also, it’s posted on our website, if you want to do it that way. So what we are going to do with this presentation, maybe a little bit of a different approach, is that we’ll focus on our second quarter dynamics and then longer-term outlook dynamics for our future and we’ll skip over some things like the trend information regarding industry trends. And then we’ll go right to questions.

But again, we’d probably still take 45, 50 minutes to get through our presentation. And of course, before we proceed, I want to just remind you, mention to you, that we are in our 70th year in business. So let’s go do it. Slide 2 is our forward-looking disclaimer information. Let us know if you have any questions. Slide 3 is our table of contents. Our Slide 1 is our Q2 presentation, and we have supplementary financial information in Appendix 1, and we don’t intend to cover that or discuss it. If you have any questions about it, please let us know. A picture of the – sorry, A321XLR, which is an important potential program, future program for Park. Let’s go on to Slide 4. We’ll have to slow down here a little bit. Our quarterly results – so let’s start go right to the right-hand column there for Q2.

An aircraft maintenance team in a hanger working on a modern business jet. Editorial photo for a financial news article. 8k. –ar 16:9

If you notice, the revenues are way down since Q1, about $3.1 million, and we’ll discuss that in detail, of course. But I also want to highlight for you, and it is highlighted, actually to make it easier, in yellow, the gross margin of 32.7%, which to me is quite outstanding when you look at the comparison in Q1 with a $3 million topline loss and a 32.7% gross margin. That doesn’t happen by accident, I don’t think. We always comment that we don’t like our gross margin going below 30%, and it does every now and then, and we tell you that. I was actually a little bit surprised myself with a topline loss of $3 million. I thought, Boy, our gross margin is going to look so good. So I was very pleased with that number. And we have an EBITDA margin of 21.4% as well, which is pretty good.

Let’s go on to the text and the bottom of Slide 4. So what do we say about Q2 during our Q1 investor call, you remember, we said, well, we didn’t provide any sales or EBITDA estimates for Q2 is out because we knew there’s a burn down coming. We told you about that, but it was kind of new information for us, and we didn’t have any quantification of it. So we said, to give you a forecast for Q2 during our Q1 call, I would have been just guessing, and that’s kind of do when you would just service. We warned you in a sense, we said, hey, something’s coming, but we didn’t know yet. We got to spend time with our customer MRAS to understand the scope of the burn down. So now we understand that and we can discuss it with you in detail, which we will.

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Q&A Session

The [second item], why their sales dropped $3.1 million from Q1 to Q2, while it’s just coincidence, the sale drop is explained completely, 100% by a $3.1 million drop in GE Aviation Jet Engine Program sales. Just so happens it’s exactly the same number. And if you do the math, this is not stuff for brilliant people, but the non-GE Aviation Jet Entry Program sales were essentially identical in Q1 and Q2, obviously, that would make sense. So let’s keep going. Let’s go on to Slide 5. Since all the GE Aviation Jet Engine Programs which Park supplies into are ramping up and going strong, which they definitely are why the steep drop in GE Engine Program sales in Q2. What’s going on here? Well, you already figured it out, it’s about the MRAS inventory burn-down, which we’ll discuss in great detail later presentation.

So we’ll get to that. We’ll go into detail about the burn down. But let’s just go back to our Q2 a couple of things we want to mention. What other considerations are there related to Q2? How things going with supply chain, freight disruption and staffing challenges? We talk about those three things every quarter for – I don’t know, you tell me, a couple of years at least. This had been really important factors for Park and in running our business. The challenges continue, but things seem to be improving. So what does that mean? It’s not like they were before the pandemic, the lead times are longer, but it’s something that we can count on more. During the worst part of this deal, it didn’t matter what the lead times were or we wouldn’t begin lead times.

We’d say, look, we’ll get it to you when we’ll get it to you. We don’t even know or we’d be given the lead time and we’ve blown and it made it very challenging to run our business from a production management perspective, from a supply chain perspective, from a staffing perspective. So a lot better. We still have longer lead times, but as long as we kind of take those into account, we are able to manage our business much better than over the last couple of years. Total missed shipments in Q2, approximately 220,000. The number is down. We still would like to be zero. Our people think we did an outstanding job in bringing the number down. And what is it about? I want to guess, probably you can guess already, international freight, that’s been the thing that’s really been the toughest for us.

I think we are doing better with that as well, but we still got surprised with international freight. Our margins continue to be affected by inflation and cost related to recently commissioned new plant in Kansas. We’ll go into details about those things which we covered those in the last two or three presentations. You want to go back and take a look, kind of questions about unless nobody just want to flag those things continue. Let’s go on to Slide 6. Important here, before we move on, I believe you must give a special shout out to Park’s people for their outstanding job, in my opinion, and delivering the margins they achieved in Q2, considering a $3.1 million drop in revenues compared to Q1. So there always will be some quarter-to-quarter variability based on product.

It was in our favor. So let’s say that it was in our favor in Q2. But notwithstanding all of that, our Park people did an outstanding job in Q2, in my opinion. So Park, you probably was burn-out pretty well. We are not the fanciest company in town, we don’t have lot of people from the fancy aviation schools. But our people are old school and our people know when to make money for owners and to me, that’s probably pretty important for our owners. I mean, you could tell me if you disagree, but if I was an owner, I would think, I want people who are dedicated to making money for me. In my opinion, our Q2 was one of our best Park quarters. What I would say that? Because when things are going great and your sales are up and everybody is a hero, but as you get the employee of the year – sorry, the company year award, to me, that doesn’t mean anything.