Park Aerospace Corp. (NYSE:PKE) Q3 2025 Earnings Call Transcript

Park Aerospace Corp. (NYSE:PKE) Q3 2025 Earnings Call Transcript January 17, 2025

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 Park Aerospace Corp. Third Quarter Fiscal Year ’25 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 be a question-and-answer session. [Operator Instructions] At this time, I’d like to turn today’s call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Brian Shore: Thank you, Alicia. This is Brian. Welcome all to Park’s third quarter investor conference call. I have with me Mark Esquivel, our President and COO. Right after the close, we published our third quarter earnings press release. You want to get a hold of that because in that news release, there are instructions as to how to access the presentation that we’re about to go through, without access to the presentation, it’s so — the call will be less meaningful. And the presentation is on our — you can link to it via your webcast. I think that’s how you say it, it’s also on our website. And as the operator already said, after we’re done going through the presentation, Mark and I’d be happy to take questions. Just want to give you a warning, the presentation, not sure, it’ll probably take 45 minutes or so to go through.

So, having said that, why don’t we just go ahead and get started. I want to go to Slide 2, our forward-looking disclaimer info. If you have any questions about it, please let us know. Slide 3. This is our table of contents. First item is our Q3 investor presentation. And we also have supplementary financial information in Appendix 1 at the back. We don’t go over that normally during our investor call, but if you have any questions about the supplementary financial info, please let us know. In the photo here, we have “The Missing Link? Thank you, James Webb Space Telescope.” So, I’m not sure I understand very well, but I’ll do the best I can. This little box in the left, there’s kind of an enlargement of that little box kind of in the middle of the image here.

And that’s, I guess, apparently a really, really old galaxy, only about 1 billion years after the universe began, which is, I think, about 13.8 billion years ago. And the problem for all our scientists is that this is way too hot and too bright for a galaxy that old, and nobody understands it. So, once again, James Webb is challenging all the wisdom and knowledge that we supposedly had and saying, “No, sorry, you’re wrong.” I mean, we don’t really care if James Webb is speaking. We don’t really care what your opinion is, what your beliefs are. These are the facts of the deal. So, it’s really quite exciting. As I think some of you know, our proprietary SigmaStrut are used in the structure of the James Webb and they are important parts of the James Webb Space Telescope structure.

This is supposedly the missing link. I know that means between primordial galaxies and modern galaxies. I think you’ve got to put modern in [indiscernible] because modern is not like 10 years old or something like that. But we’ll see, interesting and it’s really so exciting and thrilling for us to be part of it. I would say this is probably like one of the top five things that Park has done since we started, not — we’re not as old as some of the even modern galaxies, but 1954. Okay. We’re going to get down to earth or come back down to earth and go to Slide 4 and talk about our quarterly results. If you look at the right-hand column here, sorry, sales of $14,408,000, gross margin, 26.6%. And if you know us, you know that is kind of a miserable gross margin.

We don’t really like gross margins below 30%. So obviously, we’re not very thrilled with that one. Adjusted EBITDA $2,414,000. So, what do we say about our Q3 during our Q2 investor call on October 15, what would be our forecast, let’s say? Sales estimate $13.5 million to $14.5 million for the quarter. So, it looks like we came in a little bit above the range for sales, but the adjusted EBITDA, $3 million to $3.3 million, we’re way below that number. So, something isn’t right. Something doesn’t make any sense. Let’s talk about that. Let’s go on to Slide 5, on top of Slide 5, Q3 considerations. So, why is Q3 EBITDA considerably below the forecast range when the Q3 sales exceeded the top of the range? In other words, normally would say, yeah, Q3, the sales were top of the range, EBITDA should be top of the range as well.

So, let’s get into that. And unfortunately, it takes several slides to give you a proper understanding. So, let’s get into it. Okay. First check item, fiscal ’25 Q3 sales were $14.4 million, as we just said, which exceeded our forecast range by about $150,000. But, it’s a big, big, big but, our Q3 sales value of production, we call it SVP, was only $13.2 million or $1.2 million less than Q3 sales. And we won’t really talk about SVP unless it’s something significant. And I just want you to understand, SVP is not inventory value. That’s the value of the product we have sold. And it’s good to think that way because when you were trying to compare production to sales, then you have apples to apples. So, that’s why we use SVP rather than just the inventory value of the inventory that’s produced when we do production.

At Park, SVP is a significant positive — has a significant positive impact to the bottom-line. As a result, this production or SVP shortfall has a significant negative impact on Q3 or Q3 EBITDA and probably by about $300,000 actually, in terms of EBITDA production, absorbs a significant amount of cost into their produced inventory. So, what happened? Why the production, SVP shortfall in Q3? So, there’s several things to consider here. So, one bringing up the new manufacturing lines in the new factory. So, we’re going through the anticipated challenging process of optimizing new lines as you operate them and operate — and ramp them up in the production environment. It’s a lot different running something in production environments. Really that’s where you really learn, that’s where you optimize, get the bugs out as compared to doing trials or in qualifications where you could take your time, whatever you want to do it.

Production is a very different world. Going to Slide 6, ultimately, we expect the new lines, this is important, to run 25% to 50% or maybe even more faster than the existing lines. That depends on the product type. Also, it depends on when you’re talking film or tape, but think about it conceptually, it’s a lot faster. But we must go through the expected learning curves in order to achieve those results. But ultimately, that will deliver a lot of oomph to the bottom line to be able to run our products so much faster. The new lines are designed with better controls, also, which is another factor. Better controls than the existing lines, capable of producing tighter tolerance, meaning better quality products. We actually do not need to run — okay, this is a new key thing, need to run new lines at all to support current production levels.

We’re ramping up to prepare for the coming Juggernaut. We talked about the Juggernaut a lot, that is coming toward the end of the presentation. On Slide 26, when we get to that, we can — you’ll see very clearly why we don’t need to be running the new lines to support the production level. That’s not the point, but ramping up a little too early, though, will cost our P&L in the short time — in short term. And it’s hard to say. You’re always doing the best you can to judge when to ramp, when to ramp, and try to make the little minor adjustments. But ramping up too late and not being prepared to support the major programs as they ramp up, that Juggernaut, well, we all know how that would end and it’s not a pretty picture, not a pretty thing to contemplate.

You get behind and you’re kind of screwed. So, you want to err on the side of being early rather than being late. And you just continue to make the adjustments as you need to. But the bottom line is — including the impact on the bottom-line, the bottom line is we better be ready for the coming Juggernaut, that’s the most important thing for us. On Slide 7, ramping up the new lines is now part of our — ramping up new lines now is part of our plan to be ready, but for the time being, the new lines run less efficiently until we get on the other side of the learning curves with the new lines and the business ramps up. When business ramp up, like I said, we don’t even need to use the new lines. So, obviously, a lot of extra costs doing that. The next item, although Park is very fortunate to have a special and dedicated workforce, great people, many of our production people are relatively new to Park and are still at the front end and steep ends of the learning curves.

So, this is another factor. As the new people are being trained to go through the learning process, our productivity, that’s measured as production units or dollars per work hour, is temporarily reduced, okay? So that’s going to affect our — let’s see, the temporary reduction in productivity negatively impacts profitability since it increases our input cost per unit of production, do you understand? Okay. It takes more time to produce a unit, so that’s going to affect our bottom-line. And in addition to that, this reduced productivity also negatively impacted our Q3 production levels, which contributed to the shortfall that we talked about, which had a big impact on our bottom-line. How much are we talking about in terms of the productivity or lessened or reduced productivity impact on our profitability?

We’re not really saying, but it’s meaningful, okay? Our current people — keep going, bottom of Slide 7. People count, 134 compared to 124 at the end of Q2. What’s going on there? Let’s go on to Slide 8. Obviously, the increase in people count at least temporarily places additional pressure on profitability, but we’ll need the extra people. We’re ramping up for the Juggernaut. And actually, since employee turnover is way down, we’ve been able to — and this is something we didn’t see coming, we’ve been able to ramp up our workforce more quickly than anticipated. That’s a two-edged sword. But our people, Sadie, Nancy, others, are doing a really good job of hiring the right people. That’s a key thing. We’ve always been able to hire people, always — for the last couple of years, but it’s appointing the right people that — Park’s a pretty unusual, quirky company.

And I would say nine out of 10 human beings are not really suitable for Park. So, we’ve got to find that one out of 10 human being. And that’s also fairly significant. Those 10 extra people probably cost our P&L $150,000 in just that quarter, just approximately. So, that’s another big part of the equation. And that was not something we expected to happen because you know we’ve been talking for quarter after quarter, we’re trying to ramp up, trying to ramp up, and it feels like it’s frustrating. You make a little progress, then you lose the progress. That’s complex and this is a tough one. We’ve been kind of holding this back. We haven’t wanted to talk about it because it’s a really sensitive situation. But my feeling, our feeling is that you’re investing your hard-earned dollars or your clients’ hard earned dollars, and you have a right to know some of this stuff.

So, we have to use some judgment, but we’re electing this point to tell you something that’s pretty important. Sensitive situation regarding ArianeGroup’s RAYCARB C2B NG Fabric. Remember that Park entered into a business partner arrangement with the ArianeGroup in January ’22, three years ago under which ArianeGroup appointed Park as it excludes North American distributor of its proprietary C2B fabric. This fabric is used by Park to produce ablative materials for missiles and rockets. One of Park’s key customers that produces the rockets and missiles of the ablative materials, this is ablative materials, a key customer which we produce with the C2B fabric is going through a requal of the fabric, not Park material, of the fabric. We will not discuss why that is, like I said, all things very sensitive.

But this customer and other customers continued to buy and stockpile significant amounts of C2B fabric of Park. Our C2B fabric non-material sales are expected to be approximately — almost $7 million, $6.9 million in fiscal ’25 — $2.5 million next year or more, and actually $3.9 million just in our Q4. So, these OEMs, they’re obviously committed because it’s at their risk. I mean, this is their inventory, they keep buying and buying and buying, stockpiling this product. But meanwhile, one of the key OEMs is saying, well, we’re requalifying the C2B fabric. And here’s the thing, let’s go to the top of Slide 9, however, until this requal is complete, we — Park is not able to produce the ablative materials using C2B fabric for this customer. Now, what’s going to have to happen?

First of all, the program is so critical it has to happen. But secondly, they’re buying millions and millions of dollars of this fabric. So, it’s got to — it has to happen. But until they get done with the requal, we can’t produce the materials for them. As a result, Park had no sales to this customer of ablative materials produced with C2B fabric during Q3. Remember that we sell C2B fabric — so just to be clear, we’re saying we didn’t sell any materials that were produced with the fabric. We’re still sell the fabric, two very different things. Remember that Park sells the C2B fabric to our customers for a small markup. So, we sell the fabric to our customers, they’re stockpiling all this fabric, small margins. Our margins — but the margins we’re producing and selling ablative materials using C2B fabric are significant.

Let me just tell you what we’re talking about here. We expected, and we didn’t know that was going to happen, so it’s beyond our control, we have no control over the requalification. We’re the good guy in-between trying to help, be helpful, but we can’t control how quickly this requal is done. But just to give you a perspective, in Q3, we expected to sell $400,000 of materials made with C2B fabric. Now, $400,000, not that big a deal. Really? Over $300,000 when it dropped to the bottom-line, okay? So, now you get a perspective on how this works. When we sell the fabric, the margins are very little because we get a little markup. When we use that fabric to make materials, now see a customer owns a fabric for a customer, the margins are — let’s use the term huge, I would say, okay?

So that should give you a perspective. Until the requal is complete, we’ll have to live with this P&L double whammy, selling the fabric with a small markup or not being able to sell a very high margin on ablative materials, produce the fabric, okay? So, at this point, the requal is expected to be complete in March, when we put requal and is expected in quotes because it’s not something we have control over. Now, there is motivation because there’s pent-up demand for producing these rocket and motors and missile systems and they can’t do that with a fabric, they need the material from us. So, let me just see if I have a note here. I just want to know. It’s okay. So if that does occur that the requal is done in March, we expect sales to this customer, this customer alone of ablative materials, the materials used in the fabric to be about $2.5 million or more in ’26.

The contribution from those sales, well, I just explained what that would be, there’s a pent-up demand. So, as soon as the requal is complete, we’ll be off to the races. And the limit will not be the market, the limit would be how much product — how many systems the customers are able to produce. Let’s go on to Slide 10. We’ve been holding back talking about that very sensitive, but we felt you should really know what’s going on here, because, like I said, you’re investing your hard earned dollars or your, call it, clients’ hard-earned dollars, you’re told to know these things, I think, at least to some extent, the extent to share them with you. Slide 10, so, here’s a question. Why didn’t we expect these things to happen in Q3? Why didn’t we take these things in consideration in our Q3 EBITDA forecast we gave you?

Well, we actually did expect to produce and ship that $400,000 of ablative materials. That’s not really on us. That’s just because the requal didn’t happen. So, I think we reasonably expected that to happen in Q3. It didn’t happen, and we got that P&L double whammy, we sold $400,000 of C2B fabric in Q3, and that doesn’t help us very much at all bottom-line wise. And then, also, as we stated, we ramped up our headcount more quickly than expected just because our history has been difficult, been struggling to ramp up our headcount, our people doing a much better job of hiring — firing — sorry, finding the right people, the right people for Park, which is like a little bit of a needle in haystack, I think. We’re — most people are not cut out for Park, it’s just how it is.

But as far as the production shortfall we talked about and the reduced productivity we talked about, that’s on us. We should have expected those things when we gave you the forecast and we just missed the mark. Of course, we did our best. We missed the mark. We do not hit our production or productivity targets. That’s on us. We’re accountable for it. As a result, the Park people will not receive a bonus for Q3. And just to understand, it’s not like we’re punishing anybody, but Park needed — decided to roll this together. So, if we’re not making our numbers, we don’t get bonuses. That’s just how it is. Now, before you feel too badly for our people, let’s go to the top of Slide 11. However, there’s a sense of optimism at Park about the coming year and the future, and our Park family members will receive goodwill bonuses for the New Year.

This is not for the quarter. This is going to be bonuses, but you will not pay for them. So, let’s go on to the next item. There were significant ongoing expenses in Q3 related to operating our new factory, including expenses for depreciation in the footnote below. That’s an annual amount of about 1,000 — sorry, $1,260,000 goes into gross profit, gross margin, not EBITDA, of course. The rest is EBITDA, facilities, maintenance, utilities, insurance, overhead expenses, people expenses. But those things were taken into account when we gave you our forecast for Q3, at least where we knew about them. So, that’s that story. Missed shipments in Q3, actually a little bit better. The production shortfall was significant. But if you have been with us recently, in the last few quarters, I think it’s been like $500,000 or $600,000 in the shipments.

I don’t if it’s a trend, but we’ll take it, a little bit better. The usual suspects, international shipment issues, supply chain issues, customers on hold issues. That means customers aren’t paying their bills. Sorry, they’re not going to get shipped, and other miscellaneous issues. Yes, we kind of have a funny attitude about getting paid for what we do. Slide 12. This is just something we do every quarter for you or for — maybe it’s — I don’t know, it’s probably fine, because it’s always the same group of five top customers. Just quickly, the Comac 909, that is now what the ARJ21 retail jet is now called 901 — 909 rather. That’s the MRAS, that relates to MRAS. Over here, the Gulfstream G280, that’s Aerospheres, which is a distributor for Israeli — not aircraft, Israeli aerospace vehicle now, which makes the G280 business jet under a contract with Gulfstream.

Then bottom left, we talk about this a lot, the Patriot Missile, but that’s Aerojet. And then, Kratos, of course, Kratos [indiscernible] one of our very special customers in the Valkyrie there. And the 737-800, that relates to Nordam. That’s the WeatherMASTER Radome that’s used on the 737 line, including, I think, the MAX as well. Okay. Let’s keep going. Let’s get to one up here. Slide 13. Our pie charts, I don’t know about you, I really always like the pie charts. If you look at them, you could see that ’22, ’23 and ’24 and ’25 were pretty similar in terms of the breakdown, ’21 is very different. That was the pandemic year. Of course, aircraft was a mess then, of course. Remember, airplanes were being flown with like two people on them. We’re not — mostly not being full at all.

Okay. Why don’t we keep going, Slide 14. So, Park loves niche military aerospace programs. So, these are all missile programs, and this is the latest project. Why don’t we just focus on missile this quarter? And the interesting thing is, there are a lot of other programs that we didn’t select. I mean, there are a lot of missile programs that we’re active on, but these are some really nice ones that she selected. I won’t go through each one of them, except to point out the bottom, the SpaceX. Really, I love that company. I’m just talking personally. So, I’m really thrilled to be on that program. In the bottom right, a little history thing there, Lockheed Sunnyvale. In 1962, we produced what was called multi-layer circuit boards, we developed multi-layer circuit boards.

We were the first in the world, I believe, in 1962 for Lockheed Sunnyvale. They said they wanted to reduce weight on the circuit boards, these are for ICBMs back in the old days. And what we did was develop what’s called multi-layer circuit boards. So, we go way back with Lockheed Sunnyvale, a lot of history there. Let’s go on to Slide 15. Okay, you’re used to this slide, so we won’t spend a lot of time on it. GE Aerospace jet engine programs, we had the firm pricing LTA from ’19 to ’29 with Middle River, a sub of ST Engineering Aerospace. And so, the obvious question is who were they? Was is this about, because all these programs are GE Aerospace programs as well, as most of you know by now. When we got on these programs, Middle River was sub of GE Aerospace and GE Aerospace sold Middle River to ST Engineering about five years ago, but we were already on those programs.

Redundant factory, we told MRAS and GE at the time that, okay, once we sign this LTA, which is for sole source on these programs, we’ll build a redundant factory for you. And we did, a $20 million factory. And the reason is we’re sole-sourced in these programs and GE was wanting to have to secure and redundant factory, because they all have all their eggs in our basket. So, we did that. And the factory has been in production for a couple of years. We already talked about that. I won’t go through all these programs, but these are really all wonderful programs. You said — we just love being on these programs. It’s so great to be these programs. Any questions, let us know. Let’s go on to Slide 16. Let’s get to the second item, Fan Case Containment Wrap, the GEnx — sorry, not GEnx, GE9X engines for the 777X aircraft.

GEnx is like on the 787 and also the 747. GE9X for the 777X produced with our AFP and other composite materials. And as I think you know from last time, we recently received a PO of $6.5 million for this program. So that means the program is really starting to try to get born and go into production, they’re having their difficulties. We’ll get back to that later. Next item — we have MRAS/LTA provided for a 6.5% weighted average price increase effective January 1. So, we’re benefiting from that just last couple of weeks. The MRAS/LTA was amended, I guess, I don’t know, about a year or so ago to include film adhesive products that we developed under our joint development project with GE, and those products are all undergoing qualification now.

Life of Program, we talked about that the last couple of quarters. Still working on it. We had another meeting, another negotiation session. The ball is in our court actually because right now, we’re waiting for some of our suppliers to give us pricing. So — I mean, it’s our suppliers court, I guess. Before we’re able to recommence our discussions, we need our pricing from our suppliers so we can provide the proper pricing to MRAS and STE for the Life of Program agreement. Slide 17. Let’s talk about updates on jet engine programs. We always start with the big kahuna, the A320neo aircraft family with all these variants. Airbus has a huge backlog of 7,221 airplanes. That’s just a lot of airplanes for any kind of commercial aircraft program, any program — on any program.

Airbus, as you know, is targeting a delivery rate of 75 airplanes per month by 2027. And then, let’s talk, let’s go to 18, a Little more information, let’s see how they’re doing, go through ’18 through ’24, how many — I mean this is all A320neo aircraft deliveries, how many is delivering per year, per month? ’24, Airbus finished with a bang there, 602, an average of 50 per month, quite impressive. And really impressive, 92 airplanes delivered in December. And that doesn’t mean they’re at the rate of 92, because these airplane companies have this kind of thing where they kind of make their year in the last couple of months, but anyway, that’s a real big number. And clearly, based on this backlog, they already were producing 75 per month, not [indiscernible] because of supply chain constraints.

Aren’t we kind of tired of listening — hearing about supply chain constraints? I am, anyway. Slide 19. So, will Airbus achieve that goal of 75 airplanes per month? Yes, gosh, you ask me? Yes, I think they will. Will they achieve it in ’27? Well, after a very strong finish to ’24, which we just explained on January 9, 2025 briefing, just — what, a week or so ago, Airbus’ commercial aircraft CEO emphatically reiterated Airbus’ plan to achieve that 75 per month production goal in ’27. So, I hear a little bit of maybe comic relief. Are we Waiting for Godot? Do you know Waiting for Godot? It’s a play by Samuel Beckett, some Irish existentialist guy. I saw the play, I hated it. It was terrible. Sorry, Sam, but I think he’s not alive anymore. So, he’ll probably not going to get too mad at me for saying that.

But the concept is Godot, I think it’s supposed God. I’m not so good at this stuff. I take it from some — talk to someone smarter than me. I think the concept is Godot was God and the people are just sitting in there in the play waiting around for God, God never shows up. So, I think that’s the theme of it. Like I said, you want to really get it, talk to someone smarter than me, but I think that’s the idea. Are we Waiting for Godot? I mean, waiting for leasing to ramp up and sitting on our rear end doing nothing? We better not be. We better be ready for the Juggernaut, the 75 per month Juggernaut. That’s what we’re doing. It’s Funny thing in Aerospace, you get on the — one of the programs we’re so thrilled about. And in some of these defense programs, missile programs, [indiscernible], sole source, and it’s kind of a two-edged sword, because once you get in the program sole sourced, you can’t do anything.

So, wait for the OEMs to ramp up. We can’t tell Airbus to make more airplanes, Boeing make more airplanes, Comac make more airplanes, some of these defense contractors. So, that’s a two-edged sword. But the thing for us is we talked earlier about we can’t judge it exactly. So, we just need to make sure we’re ready. If we’re not ready, were screwed. If we’re ready a little earlier, okay, it hurts our P&L temporarily, but not be ready, that’s not something worthy of discussion. Let’s go to Slide 20. We know all about this, an approved engines for the A320 aircraft family, we’ve got two of them. One is the CFM LEAP-1A, the other one is a Pratt engine. And just a little — I don’t know, this is maybe out of sequence, but recently, December 6, ’24, GE announced that the FAA and EASA, that’s the European version of the FAA, a certified CFM’s new, that’s high-pressure turbine durability kit for the LEAP-1A engine.

That’s a really big deal because durability has been the issue for both these engines, the Pratt engine and the CFM. The Pratt is like, I don’t want to be unfair, but really big problems with durability, serious problems. And it’s a real problem for airlines. Airlines don’t want airplanes that have to sit on the ground because of durability issues. That doesn’t work for airlines. So, this is really a great thing because I think Pratt is trying to get there, but GE is making some really nice progress on durability, kind of maybe putting distance between them the competitor. But we supply only into the CFM LEAP-1A part of the A320 program. We don’t supply anything in today’s A320 program using the Pratt engines. According to the Aero Engine News, the CFM LEAP-1A market share of firm orders with the A320neo family of aircraft with 63.9% as of November 30.

LEAP has had the biggest market share for a long, long, long time. We track it every month, it kind of goes between 60 and 65. That’s a nice market share. At that delivery rate of — at the delivery rate of 75 airplanes per month, that market share of 63.9% translates into 1,150 LEAP engines per year. What’s that worth to Park? That’s worth a lot of — it’s a lot of clams or whatever you call it, to Park. Slide 21, let’s continue the same theme here. As of November 30, okay, the Aero Engine News stuff, there were 8,148 firm LEAP-1A engine orders. It’s hard to — if you’re not familiar, you don’t know, but that’s just unheard of, that’s so many engine orders. And what are those firm engine orders worth the Park? Well, a hell of a lot. If you look at Slide 37, we’ll do that later on, it gives you a feel for what our revenue is per unit.

And it’s just a lot. And obviously, it’s just a huge amount. And obviously, Airbus wants to sell more airplanes and CFM wants to sell more engines. This is how many firm orders they have now, they’re not done yet. So, let’s go on to the next item, the A321XLR. This is still talking in the A320 family. It’s a new variant. It just got — we’re just beginning right now. First delivery was in October, very nice. First commercial flight in November of last year. First commercial transatlantic flight on November 14. And then, according to Airbus, it has over 550 firm orders. This is a really exciting program for Park to be on. Remember the whole thing — theory about this airplane, much better — it’s a single aisle, but it has really good range and much better payload, more people, more baggage.

So, it could compete with the twin aisle, the wide-bodies, at least that’s the theory anyway. So, a pretty exciting program, I would think. And Boeing has not at this point, they announced that they’re going to do anything to compete against that XLR. So, the XLR has that space to itself for as long as, I guess, they’ll be there on their own. Slide 22, [indiscernible] doing time, we’re not doing too well. The Comac 919, let’s talk about Comac with the A320. This has a different kind of LEAP engine, a LEAP-1C engine. A Chinese company planned to deliver 54 919s in ’25, 84 in ’26, 110 in ’27 and 126 in ’28. So, they’re playing to ramp up. They plan to achieve a rate of 150 airplanes. These aren’t engines, these are airplanes by ’28. They’re reported to have over 1,000 orders these airplanes.

This is a very important program for Park, let me stop and emphasize it. The 919 is now flying with three different Chinese airlines. It’s really flying in China mostly at this point. And a lot of people thought that it was going to be a China-only aircraft. No, don’t tell Comac that. They reportedly have delivered 16. So, they’re starting, but they’re getting there. And here is a big one. They’re aiming, they say to have the EASA certification, that’s the European certification, in 2025. What happened to, “Well, it’s a China-only airplane.” Don’t tell Comac that because they’re not thinking that. So, this is going to be a — I think, a very exciting program for Park, I’m going to put it that way. We’re aiming for Southeast Asian flights in ’26 outside of just China.

Let’s go on to Slide 23. 777X with the 9X engines. So, in August, the FAA temporary grounded the 777X after they had some engine attachment defects were discovered. September 6, 2024, one of the 777X test fleet aircraft reportedly returned to the skies and I’ve seen several articles about that, but it’s funny, I haven’t seen much confirmation of it. So, if you hear a thing about it, please let me know, because I’m still trying to — we’re still trying to figure out what’s going on there. The Boeing’s current certification, the first delivery target for the 777X is ’26, and as of ’24, they have a little over — September ’24, a little over 500 orders. This is a really important program for Park, so that’s why we highlight it. And we haven’t talked about this very much, but we’ll just quickly say the Global 7500/8000 with the Passport 20 engines, they just announced their 200th delivery of airplanes.

Going on to Slide 24, again, something you’re familiar with. So, what do we do here? This is GE Aerospace jet engine program sales history and forecast estimates. Let’s just go down to the bottom right. Spending a lot of time with the history, we’re just running out of time here. So, first of all, Q3, we should talk about that, $6.9 million of sales on GE programs, and we have a forecast for Q4 of only $5 million to $5.60 million. That’s a little bit of a weak quarter, Q1 was $5 million, but remember, that was because of the storm damage, Q2 and Q3, about $7 million. So, looking for not a great quarter in Q4. And it’s pretty much booked, so we pretty much know what’s going to happen. We think for the year ’24 — fiscal ’25, $24 to $24.5 million.

That compares to about $21 million from ’24, and what, $22.3 million in ’23. So, moving the right direction. We even give you a forecast for fiscal ’26. That’s approximately $30 million, $28 million to $32 million. It’s a preliminary forecast. But I want you to know that with this it’s based on the input from our customer. And these are the low numbers. We get a low, a middle and a high. Those are low numbers you’re getting from our customer. We’ll see what happens. We’ll keep you posted. Let’s go on to 25. Okay, we’ve got to slow down here a little bit. So, Park’s financial performance history and forecast estimates. Now, this we’re talking all about Park. So, you already know about fiscal ’25 Q3, we already talked about that. Q4 forecast $15.5 million to $16.3 million, sales $3.3 million to $3.9 million EBITDA.

If you just do the math, we had the first three quarters, fiscal ’25 for the year, about $60.5 million to $61.5 million, $11.5 million to $12.2 million for the year. But we’ll talk about the year in the next slide. So, the EBITDA numbers for Q4, looking really good. What’s going on here? Well, remember that $400,000 of C2B ablative materials, materials that we were looking to sell in Q3? Now, we have that scheduled for Q4. Let’s knock on wood about that one, but do you remember how much contribution and significant production plan? Now remember, we underproduced, we had a production shortfall in Q3. So, we actually — and we burned on inventory. That’s how we got our sales. This is — sorry, I should say, finished goods inventory. Finished goods at the end of Q2 were $1.7 million, at the end of Q3 about $700,000, so we burnt down about $700,000 in finished goods inventory.

So, in Q4, we’re looking to build back that inventory and then some. And because — remember, production is really good for our P&L bottom-line. And I think we’ll do better this quarter in terms of hitting our production target because we’re — I think we’re trying to get ahead on production, let me put it that way, and I think we’re doing pretty well. I think we’ll be okay with production. So, that will help our P&L run, won’t hurt it. Just so you know, you ask about inventory, the inventory went up a lot in Q3 as compared to Q2, but that was because of in-transit C2B inventory, a lot of it that ended up being part of our balance sheet at the end of Q3, but the finished goods inventory actually went down quite a bit. And I also want to tell you something just because — okay as you hear it, we have planned for Q4, it says right here in footnote 3, $3.9 million sales of C2B fabric, which is a lot.

But a little over $1 million, about $1.1 million of that is at risk because it requires French government approval. And that has a significant impact for our bottom line, that’s actually the higher margin than most of our C2B fabric sales. So that may not happen. And here is another example where we’re just a good guy trying to help out, but it’s the French government and some big OEM, they’re trying to make this happen. The say it’s going to happen and the French government approval in Q4, it does or it doesn’t, we won’t get the sale, and that sale will slip into Q1. I just wanted you to be aware of that. Okay. So, let’s go on to Slide 26. I’m sorry we’re taking so long here, but it seems like there’s always a lot to cover. Slide 26 is also one I want to slow down on a little bit.

I guess, let’s look at the annual numbers. I think there’s an interesting perspective here. Let’s look at the important themes. So, supply chain limitations affecting the aerospace industry. Look at the top-line, you can see that we had $60 million in fiscal ’20 before the pandemic, then we’re $46 million, and you can see next ’21, ’22, ’23 and ’24, they’re really struggling to get reborn after the pandemic, so the aerospace industry is ramping up costs for the Juggernaut. So that’s really more bottom-line factor when we look at fiscal ’25 that we already talked about. And also, fiscal ’25 includes $6.9 million of C2B fabric sales, which, of course, are lower margin. So that’s going to explain to some extent why the margin numbers aren’t what — the EBITDA numbers aren’t what you’d expect.

I mean if you look at, compared to fiscal ’20, the top-line, this is going to be about the same in ’25 as ’20, maybe a little higher, with the bottom-line little lower. While as you consider $6.9 million of C2B fabric sales, that we had almost none of those in ’20. That in itself would explain the shortfall. And let’s see. One other thing I want to bring to your attention, so yeah, when we — I think in Q1, we gave you a forecast for the year, I think it was $60 million-$65 million top-line, which we plan to make more or less. We also said $13 million to $15 million bottom-line EBITDA. And we’re not going to make it. Now at that point, when we announced Q1 and gave you the forecast for the year, we expected lots of sales of C2B materials and that’s been a real disappointment.

And that’s kind of why — partly why we wanted to tell you about what’s going on with the requal, it’s all about their requal. And their stockpile — and like I said, a lot — the OEM stockpiled lots and lots of the C2B fabric, but until the requal is done, we’re not able to produce it. And that really held back our bottom-line in the current fiscal year. And we didn’t see this coming when we gave you that forecast in — I guess, when we announced Q1 in July. So that explains, say, well, we should have known that our ramping up costs for the Juggernaut, we did, but we didn’t know that we’re going to miss the mark so much with the C2B materials. And we want to take the responsibility for everything we can take responsibility for. But that’s not on us.

I mean that’s not on us. That didn’t happen. We’re the good guy trying to help out, but those are two big behemoths that have to figure out how to get this requal done. And they’ll get it done. They have to get it done. They have a lot of motivation. But until it happens, we’re not able to produce those materials. And I already gave you a feel for what the margins are in those materials. That alone would explain the shortfall in terms of what we forecasted that $13 million to $15 million when we gave you the forecast for the fiscal year when we announced Q1 back in July. Sorry to slow down, but a lot to cover there. General Park updates, Slide 27. Most of the stuff, just updates that we talked about last time. And to some extent, we include this because — the updates because if we don’t, people say, “What happened?

Does that mean that’s no longer an active thing?” So, we want to try to avoid that. Solution Treater project, so it’s still a front-burner go project. Next one, the major OEM supplier asked Park to partner with them on the purchase of an additional manufacturing line. That’s a $5 million investment, $5 million each. Well, we’re going to tell you now that OEM is ArianeGroup. So, we thought you should know that, and also tell you that we’re expecting $75 million in contract — of sales through 2034 on the contract that we’re negotiating with these people. So, those are the updates. Let’s go on to Slide 28. So, we talked about this last time, essential large, high-profile, large and emphasized missile defense program and update. We’re Sole Source Qualified in this high-profile program.

And we talked about being Sole Source Qualified and what that means. Additional revenue is expected this year and ramp up from there. What’s the program? Have you heard of the next-generation Iron Dome? Let’s go on to next item, Park recently entered into a license agreement with an OEM to license technology of hypersonic missiles. Not much of an update. We’re just in Phase 2 and so far — of the manufacturing trial so far, the results are good. Let’s keep going with the updates on Slide 29. That agreement with GE Aerospace, this is not MRAS agreement we’re talking about, this is GE Aerospace. We talked about it the last time. Now, the only update is the agreement is complete, executed that — when we talked last time, it was still in the works.

We can skip over the next item, not really much of an update. And the last item, the Supplier Scorecard for MRAS: 100, 100, 100. And what does that mean? It’s hard, I think, for most people to appreciate what that really means, how significant it is because it’s just not heard of from — at least from what people tell me. So, let’s not dwell on that too much, we’re running out of time here. Let’s go on to Slide 30. New emphasis. This is an important thing, and we have to slow down on this one, too. Park new emphasis on military/defense markets. Why this new emphasis? Well, how many new commercial aircraft programs are in the works. You’ve got the 777X, working in that program. Comac 929, we can’t talk about it, but for reasons that we’re pretty sure we’ll never get in that program.

We also don’t know anything else, maybe Boeing will come up with another airplane, but that’s still uncertain. So — but there are significant opportunities materializing — which have materialized for us in the military/defense markets, particularly related to new major missile programs. What’s our focus? Ablative materials and also materials for hypersonics. Currently engaged in several high-profile and essential missile programs, ablatives and hypersonics. Some of these programs are quite large. Let’s go on to Slide 31. Unfortunately, these programs are highly sensitive and confidential programs and which we’re not able to provide specific information this time. I mean, we feel very sorry about that, but these are, like I said, quite sensitive programs.

We’ll provide more information when we’re able to. For now, let’s just say there are several high-profile programs on which Park is engaged, including three missile and hypersonic programs on which Park’s materials are undergoing serious evaluation. Each of these programs has the potential to generate $10 million or more of annual revenues for Park. So, this is not just casual stuff I wouldn’t take. Now remember also, Park is a true blue American company, and I’m saying that we’re talking about military/defense. Let’s go on to Slide 32. Recent questions from investors. An investor, well, what about that Fan Case Containment Wrap for the 9X engines? We used to talk about the redesign risk where the Fan Case could be designed out. Why are we not talking about that anymore?

We could be wrong, but we believe that ship has sailed and the program will proceed with the current Fan Case design, utilizing the containment wrap. We also had a question on the way about our strategy. And I don’t know what to do about that, because I want to go over it with you, but the problem is we’re running really late, and it probably takes at least five minutes to do even a very snapshot presentation of our strategy. So, I’m not sure how to handle that. We’ll try to figure it out later. Slide 33. Our buyback, really not too much of an update here. We haven’t bought any stock since the — we did the Q3 investor call. So — and why is that? Because after the — sorry, Q2 investor call, this is the Q3 investor call, Q2 investor call, which was in October, the stock seemed to recover, seeming to get to better levels.

And we wanted to back off a little bit and let somebody else buy stock, not just us. I’m kind of only half joking about that. But one thing you should know is that during Q3, we did actually buy 180,000 approximately shares during Q3 at a total cost $2,363,000. And that pretty much would explain the change in cash from Q2 to Q3. Obviously, there are a lot of other factors up and down, but that will explain that — the change in cash on its own. So, no — like I said, no additional shares have been purchased under the authorization since October 10, which I think is more or less when we announced Q2. And we’ll see what happens. Are we going to buy more? Really don’t want to because we use our cash, but if the stock goes down to those stupid levels, and it’s been testing those stupid levels in the last few days, we’ll feel like — we may feel the only choice.

Slide 34, incredible cash dividend history. We can skip over this just to save time, let’s do the last one. When the regular cash dividend declared on December 9, last arrow item, is paid on February 4, 2025, and we’ll pay it, then we’ll have paid $601.1 million in cash dividends since fiscal 2005. So, it’ll be over $600 million at that point. Like I always say, that’s a hell a lot of money for small company like Park. Going to Slide 35, our balance sheet and cash. So, we got no long-term debt, $70 million in cash at the end of Q3. And remember, we got to pay $5.1 million, one more payment of the transition tax installment payments in June. So, we do a little math here. How do we think about our cash. We started with — when we look at these three numbers, $5.1 million, that’s for sure.

Solution treater, probably very likely. Contribution to OEM partnership, probably very likely. And there are other things that we’re probably going to spend on, other projects and opportunities, but these are higher than likely. So, we take that $17.6 million, we take our numbers, $70 million, and we say, yes, we probably are looking at $52.4 million that we really have. And that’s why I was saying, we really don’t want to buy more stock because we want to keep that money for opportunities. But if the stock goes down to stupid levels, we’ll feel — we may feel, I should say, may feel compelled to go in and buy some more stock. 36, we can go through this really quickly. This is — these are the same slides that we’ve shared with you for the last few quarters.

Why are we doing it? Because if we don’t, somebody is going to say, what happened here? Are you no longer on board with this Juggernaut to financial outlook? And we are. So, 36, you’re familiar with Slide 36. 37, the only change on Slide 37 is this, as I said, the ARJ21, the Comac regional jet now called the C909. And then, on Slide 38, I just want to highlight on Slide 38 and 39, there are some questions about the $15 million number, estimated non-GE programs incremental sales. We think that number is conservative, especially considering the opportunities that we’re seeing on these missile and defense programs right now. So — and the only thing that we’re highlighting on slide — sorry, the footnotes on Slide 39, it’s just that the $15 million number is conservative.

So again, I apologize for taking so long to go through the presentation. Operator, we’d be happy to take questions at this time, if there are any.

Q&A Session

Operator: Thank you. We’ll now conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Nick Ripostella with NR Management. Please proceed with your question.

Nick Ripostella: Good afternoon, Brian, and I just want to say thanks again for the transparency on the issues in the quarter. It’s appreciated. And as always, I’m very happy with the way you treat share repurchase, and the language about buying it when it gets stupid is right on the mark. I think the shareholder base is sufficiently patient now and understand what the upside is. So, we may not get to those prices anytime soon. But just a quick question, and I may have asked you this before. There were slides in past conference calls where there was Park content on SpaceX product, and obviously, there’s Blue Origin. Is that something that Park can still have content in? I’m just interested in that. And the second question is, I may have asked this before as well, do you think, in any way, Comac product and what you supply could be affected by hostilities between U.S. and China, et cetera?

Or are they pretty much, they need your stuff? And so, that’s it. Thank you so much.

Brian Shore: Thank you, Nick. Happy New Year, by the way. Yeah, in the slide, it talks about the — we love niche military programs. I think we do refer it to a SpaceX program. To me, I really love that company. The other one was Blue Origin. Was that the other one you were asking about? Sorry.

Nick Ripostella: Yes.

Brian Shore: Mark, do you want to chime in on Blue Origin? I think we have some involved, but maybe not that much.

Mark Esquivel: Yeah. We’ve done some work with them, Brian. We do a little bit of a structure for them in our parts operation. It’s really niche. It’s a lot of volume. We’ve built some minor structure for them. And we did a project many years ago. We’re looking at strut technology with composites, but they went ahead and went with a metal strut instead.

Brian Shore: Metal, yeah.

Mark Esquivel: Yeah. We did do design and build a couple of struts, but we were not down selected on the program. So, we have connection there, and we continue to talk with them and still looking for other opportunities.

Brian Shore: Okay. Thanks. To me, I love SpaceX, I just love that company. They’re very different than typical aerospace company. I would put Kratos in that category as well in a positive way, a different in a positive way. So, the more we can do with those people, in particular, the happier, I think at least I will be. Comac, it is an obvious question and a good one. We’ll have to see what happens. I would be quite shocked if anything can happen quickly, because the 919 is a real prestige program for the Chinese. And I’m not an expert of their culture, but that’s really important to them. The prestige known to make sure that they’re respected and [indiscernible]. And for them to change gears with materials for the 919 program would be so risky and it could put the program back years.

So, we’ll have to see what happens. I don’t know, but I’d be skeptical about anything that happens soon. So Chinese, as you know, they talk about developing their own engine. And I’m not so sure that’s really an issue with trade tensions. That might be more of an issue with CFM. In my opinion, CFM better make sure they get enough engines to the Chinese because if they don’t, they’re just going to give the Chinese more motivation to develop an engine more quickly. So, I’m just — that’s just my opinion. I could be wrong, but that’s my perspective. We’re always nervous and concerned, but I wouldn’t say that would be — at least for me our — my top 10 concerns that we lose the Comac business because of trade tensions between the U.S. and China.

We’ll have to see how that works. A lot of it could go different ways than people are thinking also, we’ll have to see how that works. But I don’t know what else to say about it, except like, I guess, maybe for perspective, not one of my top 10 concerns right now when you weigh. Any other question, Nick, or is that going to help you out a little bit?

Nick Ripostella: No. Okay, thank you so much.

Brian Shore: Okay. Thank you, Nick.

Operator: All right. I’m seeing no other questions. I’d like to turn the floor back over to Brian for any closing remarks.

Brian Shore: Thank you very much, operator. And thank you all for listening and having the patience to hang in there for a whole hour. And I’d like to take this opportunity from everybody at Park, all of our Park people to wish you the very best in 2025, a very happy New Year to you and your families. Thank you and goodbye.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.