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Operator: Good morning. My name is John, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Fourth Quarter Full Year 2023 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 Thank you. At this time, I will turn today’s call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Thank you, Mr. Shore. You may begin.

Brian Shore: Thank you, John, and welcome all to our – the Park’s of fiscal ‘23 Q4 Investor Conference Call. I have with me, of course, Matt Farabaugh, our CFO, as usual. We announced our fourth quarter earnings this morning, so you want to pick up on that if you haven’t so far. In the earnings release, there are instructions as to how you can access the presentation that we’re about to go through. You can get on a webcast. It’s also on our website. I don’t know if you know this, but for our standards anyway, the presentation is a little bit shorter than it has been recently. I think it’s about 40 slides or 39 compared to over 50, maybe 55, but there’s a lot to cover still, so it may still take the same amount of time.

We’re trying to take a little bit of a different approach this time. We’re going to focus less on program and project updates and industry trends. If you want that information, I suggest you might want to go back and check our Q3 investor call presentation or the company presentation, which has a lot of detail on that information that we tend to cover quarter after quarter. But like I said, a little bit of different approach we’re going try at this time. We will cover the numbers, but then we’ll be more – this presentation will be more on our outlook, something new we haven’t given you before. Then we’ll talk about capital, dividends and we’ll talk about recent announcements. So Matt and I will then answer, after we’ve done with the presentation.

Going through the presentation, Matt and I will be happy, of course, to answer any questions you might have. So why don’t we get started. Here we go. Slide – let’s go to Slide 2, our forward-looking disclaimer. Just let us know if you have any questions about our forward-looking disclaimer. Go to Slide 3, and we have our little table contents here in the presentation, supplementary, financial information in Appendix 1, as you know, we normally don’t cover, go through that information, but let us know if you have any questions about it. We have a little bit of a teaser here. We have a photo of our new film line in production. We’ll talk about this a little bit later, but if you notice from the news release, our new plant has been approved for production, and it actually is in production.

So let’s go on to Slide 4. I’ll just slow down a little bit here. So here are the Q4 numbers. If you look at the right-hand column, sales $13,530,000, gross margin at 28.5%. As we always say, we don’t feel very happy when the gross margin sulks below 30%. So we’re not so pleased about that. EBITDA – adjusted EBITDA, $2,625,000. So what do we say about our Q4, during our Q3 investor call, we gave some estimates. Remember, our forecast estimate philosophy is that we tell you what we think is going to happen. We don’t pad it, we don’t give you a lower number, so we can beat it and become heroes, that kind of thing. I know that’s what most other people do, but we just don’t think that’s appropriate for Park. So sales estimate, we – it was $13.5 million to $14 million.

We’re barely squeaked in at the bottom end of the sales estimate. But the EBITDA estimate was $3 million to $3.5 million, so we came in considerably lower about, what is that, $375,000 below the bottom of the range at $2,625,000. So what happened here? Let’s discuss that, why did we made – the obvious question is we made our sales number, why didn’t we make the EBITDA number? So we should go into that, and we will. And let’s go to Slide 5, so we can begin that discussion. So first of all, I want to give a shout out to our people for making the top line number, the sales estimate under very difficult circumstances, especially considering significant challenges with supply chain disruptions and unreliability. I know that we – you probably think, and we cover this stuff every quarter, it may be boring to you, but it’s real life to us.

It’s a real life day-to-day struggle and challenge for us dealing with these things. Now we keep hearing that supply chain stuff will get better, is getting better. We haven’t seen any meaningful improvement yet. And when we get to the Airbus A320 ramp later on in the presentation, maybe we could think about supply chain and how well it’s doing. At least that might be a good proxy for the supply chain. Let’s go back to – sorry, let’s go to the next bullet item. We’re getting – this is okay, important. This is a little bit new. We’re getting better at managing the challenges by building inventory where it’s possible and appropriate and providing suppliers with longer lead times where it’s appropriate, but it’s still a very challenging and difficult situation.

The freight disruptions and unreliability, we’ll give you an example of that. Second, ongoing staffing shortages. This has not gotten better for us. It continues to be a very difficult challenge for us. They said there’s full employment in our country, but that’s because so many people left the workforce, which to us is a real tragedy, not only for us, but for the people whose kind of lives have lost and drifting that just have left the workforce and probably are not so capable of coming back to it. It’s very sad. What will cause this problem to improve? I’m not sure with the full employment situation, but a lot of people say what was needed is a pretty good recession. So it hopefully doesn’t come to that, and we’ll see what happens.

I guess I won’t comment any more on that right now. Let’s go on to Slide 6. Now here we go. Total missed shipments in Q4, approximately $1.4 million. That’s a huge, huge number. Recently, in the last few quarters, it’s always a big number, but it’s usually what, $600,000, $700,000, $800,000, $1.4 million, That’s a doozy of a number. But here’s the thing, $1.2 million – approximately $1.2 million of that number were missed shipments of higher-margin ablative materials to overseas customers, really two shipments in Japan and Italy, two very big shipments. What happened? Raw materials came in late, see? There you go. International freight, this is a real challenge. Our freights all are refrigerated. We can’t just put it in any truck, so that limits our freight options considerably.

Then we go to international freight, it’s even more challenging. And it’s difficult for us to flex up our workforce when we’re already maxed out. So we get the raw materials in last couple of weeks. We’re squirming around always. It was always adjusting our schedule. Otherwise, we’re often adjusting our manufacturing schedule because of supply chain issues. But we don’t have the ability to just kind of flex up because we’re really maxed out in the last couple of weeks to get stuff through the manufacturing plant and through testing so we can ship. Factors which affected our margins, now let’s talk about margins. We talked about top line. Let’s talk about margins in Q4. So here’s an interesting thing. It’s just coincidence, but is that $1.2 million number.

Again, fiscal ‘23 Q4 sales of approximately $1.2 million of Raycarb fabric sold by Park under our business partner agreement with ArianeGroup for ablative applications. Remember how this works? This is just a markup. So for a lot of our big customers, they want to stock this material. We have this exclusive arrangement move ArianeGroup in France. So we’ll buy it, resell it and sell the product to the customer. We hold it for them often. And then when they’re ready for us to produce the material, we’ll produce the material with this fabric that they’ve already bought, that they own. It’s a small markup, very small margins. That’s the plan. When we have – ultimately, it’s a good thing. We ultimately – we actually make the prepreg, the margins are quite good.

So see what happened here? We lost $1.2 million for this high-margin product and we substituted with $1.2 million of low-margin product. That alone, that one factor alone will fully explain the EBITDA shortfall, would get us to the low end of the range, which is what you would expect since the sales were at the lower end of the range, okay? So it’s that $1.2 million number, just a coincidence that it’s exactly the same number, but it’s very interesting how those two numbers work together. And like I said, I’ll say it again, that factor alone, that’s not the only factor, that factor alone would explain the shortfall in EBITDA. In other words, if that factor was reversed, we wouldn’t have had a EBITDA shortfall. So let’s go on to Slide 7 because there’s more to the story, even though that factor alone would explain the EBITDA situation.

What else are we talking about in terms of what affects our margins? Significant inflation hasn’t gone away or abated, not yet – not for us yet. And I won’t go through all these items because this is just a repeat of what we’ve discussed in the last couple of quarters, pretty much everything. Now we’ve discussed this before, but let me just remind you, some of these increased costs were passed through to our customers in form of selling price increases. A couple of things here. First of all, some companies are just, to us – I don’t know. I mean, doing insane price increases, like doubling your prices and we’re just not going to do that. We’re long-term players. We don’t know if these are – what we consider to be abuse to our customers when treated improperly, indecently.

So we do raise our prices, but not kind of in abusive ways. So why has that not totally covered the cost increases, the lag effect when we talked about this? So when we accept a PO or redo a PO, we honor that PO, we don’t, half way into the delivery period, we don’t say we’re raising our prices to our customers and that’s something others are doing. We won’t do that. And we have long-term LTA pricing with certain customers, particularly MRS. We’re not able to just pass through our inflationary cost increases. Let’s go on to Slide 8. Supply chain disruptions causing significant inefficiencies in our manufacturing operation. So if you’re familiar with manufacturing, you know what manufacturing people normally want is good planning, plan out three or four months or five months in terms of what will be run and when.

That’s how manufacturing is going to be most efficient. Now our calling card is not like others. Our calling card is to be responsive, be flexible, have urgency. So we like being able to – we like having the ability to move around to adjust for customers. But this kind of stuff is just beyond our experience. We guess the supply chain changes. We have something planned and then it doesn’t – the raw material doesn’t come in, something else comes in, we have to make adjustments. Every time we do a changeover with these treating operations, there’s a lot of downtime, a lot of expense, a lot of extra expense. It’s hard to appreciate unless you’ve seen the operation, but it’s a big deal, has a big impact on our margins. Staffing shortages and limitations.

So we’re paying lots and lots of overtime and other inefficiency relating to our labor just because our staffing just because it’s so tight and costs related to the newly commissioned plant in Kansas. So it’s a good thing, it’s a great thing, but we just started to run it. So obviously, we don’t have it fully utilized yet. So there’s at least for a period of time, a negative impact of the cost of that new facility, the new facility, which we just started to actually produce product in for sale. Let’s go on to Slide 9. So this is the fiscal year comparisons. And obviously, you look at ‘22 compared to ‘23, you say, geez, the top line was about the same, ‘23 as compared to ‘22, maybe a little bit better. What happened to the bottom line?

What happened to adjusted EBITDA? What happened to gross margins? Well, it’s those factors we already discussed, inflation, supply chain, staffing. And we’ll actually talk about that when we get a little bit further into the presentation in terms of quantifying what we think the impact of that was when we get to Slide 27. So hopefully, I’ll remember to bring it up again when we get to Slide 27. It’s further down the presentation. Let’s go to Slide 10. We’re going to move through this pretty quickly. We do this every quarter, our top five Aerojet Rocketdyne. That’s the Army tactical missile system, Aeromatrix, something – a photo for them. Kratos, we obviously have the Kratos Valkyrie. Middle River, we have the Boeing 777X. And then Nordam, we have the 737-800, that’s for the weather master radome.

Let’s go on to Slide 11, our pie charts. My only comment is, you note that ‘23 is very similar to ‘22. So it seems like we’re kind of settling in to this kind of market segment breakdown. If you look at ‘21, it was very different, but obviously, that was a pandemic year. So let’s keep going. Slide 12. Park loves niche military aerospace programs. This is a slide we do every quarter for you. We like to show you photos of some interesting military programs that we’re on. And then we have our pie chart, which, not that different than prior quarters, but rocket nozzles, drones and radomes, we would consider those to be niche markets. Space is small, but that’s niche. Aircraft structures, even for us, it’s niche. For other people, it might not be niche.

To us, means more margins, better margins. Let’s go to Slide 13. Okay. So we cover this, I guess, every quarter for the last few quarters. The trends and considerations in the – for the military markets. We talked about the war at length and how it’s affecting the military budgets and spending. Let’s go on to Slide 14. If you have any questions about any of this stuff at the end, let me know, let us know, but we’re just going to kind of scan through it because we covered these things before. Slide 14. I guess the top – the first items are important because there is this desire to build up the military infrastructure, but what’s holding it back is supply chain limitations. We also have some kind of issue regarding the debt ceiling negotiations, that seems to be a factor as well.

But I think big picture is really supply chain that’s holding things back. Let’s see. Next item, Missile Defense Systems. We talked about this. We talked about the PAC-3 Patriot missile. We’re sole sourcing that program for ablative materials. Lots of countries want the PAC-3 system for obvious reasons. Going to Slide 15. The check item on Slide 15 are sales of ablative materials, and C2B fabric were $7.75 million. We’re providing that to you because we told you we would, that we told you we’d give you an update at the end of the fiscal year. So you have that. Slide 16, we got some trends and considerations for commercial aerospace, not too much new here. The commercial aviation industry continues a strong recovery and rebound. Domestic aviation, almost back to where it was pre-pandemic.

International, getting there as well, 75% to 80% pre-pandemic. Customer demand seems to be there. But there are some watching question items, which we talk about from time to time. Let’s go to Slide 17, the economy. Well, people continue to fly at the same rates if the economy falters. Actually, there are early indications that may be that the economy is having some impact upon travel patterns. I heard that Airbnb announced recently that they’re seeing a little bit of slowdown in travel, so just something to be – to pay attention to inflation. So you know if you fly, the airlines, the ticket prices are quite higher. These airlines have to cover the additional costs for the people and everything else, but especially jet fuel. So is that going to be okay?

Are people going to continue to pay these prices? I don’t know. Then the last check item on Slide 17. Yes, these labor shortages, pilots, mechanics, flight attendants, you know, sorry, you name it, and you got it. So – and then the other thing that we’ll throw in, which we haven’t mentioned before, about those ATC delays that we’re expecting this summer. I mean, big ones. I guess some of the airlines, they need to cancel some of their flights because the ATC won’t be able to handle it, particularly here in the Northeast corridor. So that could be a factor. The $64,000 question, if the commercial aviation industry does falter, what are the airlines going to do? How would Boeing respond? How would Airbus respond? We discussed this before.

I think they both want to keep going with their production rates, ramp up. My opinion, not that I’m an expert, is that Airbus might be more capable of doing that. Boeing may want to, but may not be able to for their own reasons. So let’s go on to Slide 18. And of course, even if aviation industry remains strong, the commercial aircraft industry still has to deal with its own issues. What are they? Labor, supply chain, inflation, kind of a broken record, but these issues are not related to any one segment of the industry. They’re not really related to one industry or one geography, they seem to be global issues. The silver lining, we’ve talked about this before, as fuel prices get more expensive, some of the airlines are looking to swap out their the legacy gas guzzling airplanes for the more modern airplanes that are more fuel efficient.

Let’s go on to Slide 19. We got to slow up here a little bit. We provide this slide every quarter, but pretty important stuff. GE Aviation jet engine programs. So firm pricing LTA requirements contract through 2029 with Middle River Aerostructure Systems, we call it MRAS. They’re a subsidiary of ST Engineering Aerospace. I’ve got to remind you, we do usually that – what’s going on here, why all these GE Aviation programs, what is ST Engineering have to do with that? Okay. So I think you know, but I’ll just remind you if you forgot that Middle River used to be a sub for many, many, many years at GE Aviation and all these GE – we were putting on all these GE Aviation programs, Middle River was a sub of – MRAS was a sub of GE Aviation.

It was subsequently sold to ST Engineering Aerospace, a large Singapore-based aerospace company, probably four or five years ago. But those programs continue because we’re qualifying those programs. Just so you know, MRAS and STE are asking for life of program. So our current agreement goes through 2029, they’re asking for life program. What does that mean? That means that we would reach an agreement under which we’ll supply into that program until the program ends. So let’s say, the A320neo, you tell me when it’s going to end? 2045? I don’t know. I mean these programs go for a long, long time. That’s how life of program works. We’ve done the factory, yes. We finished that. It’s in production. Sole source for composite materials, for engine nacelles and thrust reversers for these programs.

The first five, let’s call those the A320neo family, they all have the LEAP-1A engines, the 747-8. So that program ended, but there’s still spares actually for that program. Love that program. Comac 919, that’s – Comac’s a Chinese company, the 919. I’ll cover this a little bit more carefully just to the slide because we don’t have any of discussion in the presentation about these programs. As I said, you can go back to the Q3 presentation or the company presentation, which is on our website, if you want to get a little more detail on these programs. Comac is a Chinese company and the 919 is designed to be the competitor, single-aisle plane, the Chinese competitor for the A320 and the 737 MAX. It’s certified. They’re starting production.

I think they’re just starting deliveries. So we’ll see what happens with that program. ARJ21, that’s another Comac program, and that’s a regional jet, and that’s already in production. It has been for a little while. Then, we had the Bombardier Global 7500/8000 with the Passport 20 engines, those are GE engines. And that’s a business jet, large business jet. Top right. Park composite materials. We’re also sole-source qualified as a primary structure component for the Passport 20 engines. That’s not actually included in the MRAS LTA, but that’s part of it. That’s actually a GE program. And in the bottom right, fan case containment wrap for the GE9X engine for the 777X. That’s produced with Park’s AFP materials. It’s not included in the MRAS LTA, but the MRAS people told us they want to put it in the LTA.

But remember, and it’s important, there’s a design risk with this program. The company that produces the fan case is in process of trying. They’ve done us a few times, so you could be a little skeptical about their ability to succeed. They’re trying to redesign the fan case, so that the case wrap will not be required. The case wrap is required in order to pass something called FBO fan blade out, which is an essential test that has to be passed. So the engine has to demonstrate that if a fan blade separates, it will be contained. It won’t escape the engine compartment because if it does, it’s extremely dangerous for the airplane. So that’s kind of a nonstarter. You can’t have that. That’s the issue that the FBO test has to be passed.

So I just want to mention that’s a program we’re really excited about, but there is some design risk with that program. Let’s go on to Slide 20. Just a brief update on GE Aviation jet engine programs. We’re just going to cover the A320neo really, update you on that. The rest of the programs we’re not going to update you on. A320neo, we already said with the aircraft family with the CFM LEAP-1A engines includes the 319, 320, 321, 321LR, 321XLR, those variants. So Airbus recently just, I think, about a week ago, reaffirmed their plans to achieve production rate of and delivery rate of 75 A320neo aircraft family deliveries per month by the end of 2026. I think they said they want to get to 65 by the end of ‘24 actually. So will it get there?

It’s really hard to say if we’ll get there by ‘26. But I would say, I’m very confident that we’ll get to 75. Why is that? Because I got 6,000 orders for these airplanes. 6,000 orders. So let me skip down and talk about their delivery history just for perspective. 19 there’s – these are monthly deliveries, 47 in 2036. Going down there, 2021, 40; ‘22, maybe 42; ‘23 through April, 37. So they want to get to 75, 65. They also said they wanted to be at 50 by the end of last year, and they were for a couple of months in November and December, but they’re slipping back. Now they’re at 37 for the first four months of the current calendar year. They have over 6,000 orders. This is a real problem. So you tell me how the supply chain is doing.

If they had the ability to wave a magic one and deliver 75 a month now, they would do it right now because the market is there. They have 6,000 orders. So you tell me, this is the biggest program in the history of aviation, and they’re not able to get to the rates they want to get to. They’re really struggling. So you tell me how the global supply chain is doing. People say it’s getting better, and it’s really good. I don’t know. These are facts. These are numbers. And Airbus is desperate to get their numbers up. So I think it’s a good proxy for how the supply chain is really struggling. Just do the math here for a second. If they were able to get to 50 a month, that 600 a year. That’s 10 years to got 6,000 in backlog. So in other words, if they’re at 50 a month, not 75, not 40, not 37, then they need to give somebody a 10-year lead time.

You want to order an A320neo, good, 10 years. That’s terrible. They can’t get – it’s hard to get more business, hard to get more orders. So they’re desperate to get the rates up to 75 – to 65, 75. And they’re struggling, they’re struggling. Do I think they’ll get there? Absolutely, I think they’ll get there. In ‘26, I don’t know. Maybe ‘26, maybe ‘27. I don’t know when they’ll get there, but my feeling is with lots of confidence that we’ll get there. Why? Because they desperately want to get there, number one. Number two, the market is there. They have the orders. The orders are there. So let’s keep going. Did I miss anything on this? Oh, yes. So this is important. Let’s keep going on this slide because there’s a point to this.

So the A320 aircraft family offers two approved engines. One is the LEAP-1A engine and the other was a Pratt engine. We supply into the program using the LEAP-1A engine, so important to remember that. Now what’s the market share between the LEAP engine, the CFM engine, the Pratt engine? 60% for the LEAP engine. And I believe, if I recall, there’s over 11,000 orders, confirmed orders, for these engines. So there’s a lot of ballast, a lot of inertia in that market share. So let’s say, Pratt has good month, CFM has a bad month, it’s not going to change that 60% market share very much because there’s so much ballast in that – in the order backlog already. So much inertia, the order backlog already that leads to that 60% market share.

So assuming you’re 60% LEAP market share, 75 – this is the bottom check item, 75 A320neo aircraft family deliveries per month. Ultimately, if you look at the stuff in blue, the language in blue at the bottom, that would translate to 1,080 lead benches per year. Remember that number, we’ll get back to it. 1,080 LEAP engines per year. This is just math. If they get to 75 and that 60% market share is maintained and it’s going to be hard to move that market share very much with that huge backlog, engine backlog. This is the number. This 10,000 – sorry, 1,080, 1-0-8-0, LEAP engines per year. That’s it. Just pure math. Not my opinion, just pure math. 1,080 LEAP engines per year, keep that number in your head. So let’s go on to Slide 21.

Goodbye to 747, the great queen of the skies. You have goodbye to the great 747 aircraft like none other. I like this photo. This is a few years ago. It’s in Anchorage. You can see there’s snow on the ground, but it’s kind of a fitting metaphor. Maybe I shouldn’t have to explain that to you. The airplane is going away. We’re behind the airplane, that’s a 747 through the windshield there. And it’s symbolic that, okay, it’s going away. So I think if you have to explain something like that, it’s probably not worth it. 22 – Slide 22. Let’s talk about the Q4 revenues with the GE Aviation programs of $4.7 million. I think we told you when we did our Q3 earnings call, about 4.25, 4.75. So we kind of came in, in that range, a total of $22.3 million for 2023.

It’s kind of a strange number. Look at on the left-hand column, the top, 2020 was $28.9 million; then 2021, $13.2 million. Obviously, pandemic year; 2022, $26.5 million, down to $22.3 million. What’s going on here? Are the programs going down? Of course, not. Programs are – they’re trying to put their programs up anyway. It’s all over the place, short term, very erratic. It makes it quite difficult to supply into these programs. So you say they just – it’s unpredictable. The requirements for us anyway keep changing, going up and down with – not very good visibility might be a little bit of an understatement. What are we estimating for GE programs, GE Aviation programs, for Q1? $6 million to $6.5 million. Even there’s only about 2.5 weeks left in our quarter, we’re still giving this little footnote that the risk regarding that forecast for Q1.

Why don’t we go on to Slide 23. Now here’s Park’s situation, not just GE Aviation. So we already went through the Q4 number and the total number for fiscal 2023, total numbers. And we have a forecast, we’re giving you $14.75 million to million sales for Q1 and Q1 adjusted EBITDA of $3 million to $3.5 million. And again, look at the footnote because we have these risk factors. But another question you might ask is, well, if our sales are going to be, let’s say, around $15 million, wouldn’t our EBITDA be expected to be higher? And the answer is yes, higher than $3 million to $3.5 million. But the margins are under temporary pressure because these things we keep talking about, inflation, supply chain, staffing and a new plant. So that’s why I think that we’re looking at a little bit lower than you might expect EBITDA numbers based upon the sales numbers.

Let me go on to Slide 24. Okay, this is now just really the beginning of the meaningful part of the presentation, so we took a whole half hour to get here. This is our financial outlook for Park and GE programs. Let’s go to baseline outlook. Because of ongoing significant challenges related to serious supply chain disorder, I know it’s a broken record, I keep talking about the same things, but these are very kind of palpable things for us. Inflation concerns and severe staffing shortages, which seem to be a global phenomenon. And the significant uncertainty as to when these challenges will moderate and abate, providing – as a result, providing a year-over-year financial forecast would involve much speculation and therefore would not be helpful or meaningful, like I was saying regarding the A320neo, for example.

Yes, I think it will get to 75 per month, I’m pretty confident about that. But when? Really, that’s anybody’s guess. We can listen to what Airbus is saying, but that’s really a target for them and they’ve moved that target back because they’re struggling with supply chain. They’re already struggling. They’re supposed to be at 50. They’re not at 50. They’re 37 – I think I said 37 for the first four months of this year. These are real issues. These are not just things people are complaining about. So although we can talk about where we’re going, outlook-wise, it’s hard to pin it down year-over-year. And I think doing that would be guess work and what’s the point of doing that for you? It’s not really meaningful or helpful.

But although it’s not possible to predict with any meaningful confidence the timing of the abatement of such challenges, we’re hopeful that if the world survives the crisis that is currently – the crises it’s currently facing, sorry for the sarcasm here, I’m talking about like nuclear war or things like that. At some point, in the not-too-distant future, is the supply chain will reestablish some degree or inflation will moderate and staffing dynamics will normalize to some degree. As a result, we are providing, in the following slides, revenue outlook for our GE Aviation jet engine programs and let’s go to baseline financial outlook for Park generally. Let’s go on to Slide 25. What are the assumptions in doing these things and providing these outlooks?

And providing the GE Aviation programs revenue outlook and the financial outlook for Park, these are the following assumptions. There’s not a severe prolonged economic downturn during the outlook time frame. That doesn’t mean there – we’re not – if there’s a recession, let’s say, this year or next year, that’s something we’re talking about. We’re talking about in the outlook time frame. You could decide what year that is, ‘26, ‘27, I don’t know, that time frame. The global supply chain returns to some level of order in normalcy, inflation moderates, returns to historically more normal levels. Staffing dynamics return to historically more normal levels. We’re assuming at some point, the world will get better. Let’s go on to slide – we’ll skip one, Slide 26.

All right, this is where it gets interesting, GE Aviation jet engine programs revenue outlook. We gave you the building blocks for this analysis, I think, in the last quarter when we gave you the revenue per engine unit estimates. This – if you look at these numbers, these numbers come from our Q3 presentation. So the real question is, engine unit assumptions, and these are the assumptions we’re using. You can put your own numbers in, if you’d like. So unfortunately, we’re going to have to go through some of the footnotes as well because they are meaningful. Engine unit assumptions per year assumptions at footnote number one. Well, we already talked about this. A320neo, aircraft assumption, there is that 1,080. Remember, I said keep in your head.

That 1,080 is based upon information we have from Airbus. The rest of the engine unit for per year assumptions are things we came up with and we’ll explain the basis of our – the assumptions that we came up with, I think they’re relatively kind of middle of the road, maybe even conservative. Let’s go in to footnote 2, engine estimates based upon information from the customers. So these numbers, the engine unit – revenue per engine unit, I should say, numbers are – come from our customer. That’s not something we just came up with on our own. Let’s see footnote 3, we already talked about that. And then we’re – in footnote 3, I won’t go through this, 3, 5, 6 and 7, they’re assumptions in terms of whether film adhesive and lightning strike are used on these programs.

And the assumptions could be a little conservative, but we’re trying to be conservative. If we say we’re assuming that, let’s say film adhesive is not going to be on this program or lightning strike is not going to be in a program, it doesn’t mean that it won’t happen. It doesn’t mean that we’re not working on it happening because they have to – those products have to get approved by the OEMs. They have to be certified by the OEMs. But we’re trying to be conservative in this outlook. So let’s go through the individual programs, Passport 20. So we’re assuming 90 units per year. That was actually information that was given to us by our customer. But it’s, I think, relatively middle of the road. They’ve been doing about 40 airplanes per year, so two engines per airplane.

So I think 90 is a reasonable assumption. C919, 200, that means 100 airplanes. Well, how do we come up with that? Well, Airbus, the A320, remember 919, it’s a single-aisle competitor. Airbus wants to be at 75 airplanes a month, that’s 900. Boeing wants to be at 50 airplanes per month, that’s 600. So in the 737 MAX, Boeing wants to be at 600, Airbus wants to be at 900. For the A320neo wants to be at 100, 100 airplanes, 200 engines. We think that’s actually a relatively conservative assumption, and it really is probably driven mostly by supply chain because the Chinese control the market. And obviously, the Chinese want this aircraft to be a success, control who buys the airplanes and who doesn’t buy the airplanes inside China especially.

ARJ21, that’s not too complicated. Last year, there were 26, which – airplanes which were delivered, two engines per airplane, so we assume 50. GE9X, we’re not giving you the details here. We have them, but we’re trying to keep this program a little more confidential. So obviously, we – if we fill in either of these blanks, you’ll be able to do the math and figure it out, we’re trying not to do that. But I would say that, well, the revenue per engine unit, that’s something we know from our customer. The engine unit per year assumptions, we’re being pretty conservative here. And remember, there is a design risk, so this whole $6,500,000 number can go away. We had everything up and we get to this $50,625,000 number. Just to remind you, I want to remind you, fiscal ‘23, the number is $22.3 million.

So there’s a significant amount of incremental growth expected from the GE Aviation jet engine programs. Again, we call it an outlook because we can’t exactly give you what year it is. But with A320, as I said, a lot of confidence that will get to 75. The other programs, we don’t – we think we’re being middle of the road and maybe even conservative. This is just math after we decide what engine unit per year assumptions to put into the table, just math, 15,000,562. So like I said, a lot of incremental growth expected into – from the GE Aviation program. So let’s go into Slide 27. This is where it gets even more interesting. We’ll have to slow down even more to cover this properly. So Park Aerospace core baseline financial outlook.

This is for the company, it’s principally based upon growth estimates of programs on which Park is sole source qualified. So we’re not talking about new programs we’re trying to get on, these are programs we’re already sole sourced and qualified on. So we’re going to have to go through the footnotes. Let’s start with the first line base year, $54.1 million and $11.5 million. Those are just the numbers for fiscal ‘23, which you already have. Estimated GE program incremental sales. You look at footnote 1, $28.3 million, that’s just doing the math. We had taken that outlook from the prior slide and taken the ‘23, fiscal ‘23 number, and there is the incremental number, $20.3 million. And the next item, estimated incremental sales for ADL, ADRS program.

PAC-3 missile system, Kratos Valkyrie unmanned aircraft, $20 million. So we’re not giving your breakdown, and that’s really we just want to protect the confidentiality of these programs. We have the information, but we don’t feel comfortable sharing that with you. So I just so with you at this time making those assumptions public. But we feel those – that assumptions kind of middle road and maybe a little conservative. Non-GE program incremental sales, $8 million. If you read the footnote, what we’re basically saying is we’re about last fiscal year ‘23, there were about $32 million of sales for non-GE Aviation programs. And we’re saying by the time we get to the outlook here, it will be 25% growth. So $32 million times 25%, that’s $8 million of incremental sales for the non-GE Aviation business.

We think that’s a fairly conservative estimate. And we get the estimated revenue outlook of $110.4 million, approximately $110 million, we get to the outlook here. Now let’s talk about EBITDA. We started with $11.5 million. Then estimated EBITDA contribution from incremental revenues. If you look at the footnote, we’re just saying, okay, we take 110 minus 54, those are the incremental revenues. We multiple that by 37%, which we think is a proper contribution number based upon our historical financial data and performance. So we think that’s a pretty reasonable middle of the road number, $20.8 million. Adjustment to base year EBITDA. You can look at the footnote, $2.5 million I referred to it earlier in the presentation, we’re saying that we have about a $2.5 million impact in our current fiscal year – sorry, the, let’s say, ‘23 fiscal year, from all these things we keep talking about broken record-wise, meaning inflation, supply chain issues, staffing issues and now, of course, the cost of new plant.

So we’re saying these things are going to go away long-term. Inflation, we hope will moderate. Our pricing will catch up on inflation. Staffing shortage, we hope will moderate. Supply chain issues, we hope will moderate. So we’re making an adjustment because we think our P&L in fiscal ‘23, the baseline EBITDA of $1.5 million was burdened by these factors, which we think are going to improve significantly. We get to an estimated EBITDA outlook of $34.8 million, okay? So that’s just doing the math here. And remember, this is just an outlook. This is not a forecast. We’re not taking into account any new programs that we’re working on. Only things we’re sole-source qualified on already and taking that baseline number of $32 million and increasing it by 25%.

So let’s go on to Slide 28. I don’t think we need to go through the individual footnotes because I think we already kind of talked through them. Yes, we did talk through them. If you have any questions about the footnotes on Slide 28, let us know. But Slide 29, this is an important one. This is footnote 6. The above outlook analysis is not a forecast. It only considers the estimated growth of programs on which Park is already sole-source qualified, plus the 25% growth of non-GE programs sales by the outlook year, as we discussed. The analysis does not consider any other revenue opportunities, including, for example, these are just examples. This is not an exhaustive list, these are examples. Revenue opportunities related to the AFP manufacturing project we’ve discussed for the last couple of quarters.

The company’s new film adhesive product line, which we just introduced. No sales for that, 0. The Asian JV, the company is discussing now with two separate large aerospace companies. The potential new product family JV, which the company is discussing with a large aerospace company. A large aerospace program in which the company’s composite materials are a finalist. Structures, assemblies and integrations project, which the company is in serious discussions with an existing customer. A technology license arrangement under discussion with a large OEM. Several rocket and missile programs with respect to which the company’s products are under qualification. These are examples, like I said, not an exhaustive list. But I just wanted you to understand, we’re saying it’s not a forecast because if we’re doing a forecast, we would take into account these new opportunities and try to figure out, okay, how many of these we’re going to get, how many of these we’re not going to get.

That was not the purpose of the exercise. We wanted to give you a baseline outlook, and I’ll explain in a little while why we did this because, originally, we did this related to the dividend decisions that we made a couple of months ago. Let’s go on to Slide 30. We’re going to change gears here a little bit. We’ve got to rush now. We’re running up against 45 minutes. So we did a news release on this, so you’re probably aware of it. Our major expansion in Newton, Kansas is complete. A new facility was qualified and approved by MRAS for production, April 5. If you look at the photo here, it’s a nice little group photo of people from MRS, STE and Park. This is when they visited on April 5 to review the new plant approval. And approval was actually given at the time during the visit, so it was a very happy little visit we had.

First production run didn’t fall too long after that was April 19. The expansion cost $20 million, which I think you know about. It has been a long and winding road since we broke ground on a new facility on August 15, 2019. But we made it. Job is done. Well done, Park people. Of course, when we broke ground, we didn’t know that was – the pandemic was around the corner, so it made it much more challenging. We never folded down from our side. But obviously, it was much more difficult to get the job done. We have a construction crew. You remember how it was at the beginning of pandemic. One guy gets tested positive, the whole crew has to go home for two weeks, one guy and their crew for COVID, of course. Let’s go on to Slide 31. Another new event.

We recently announced Aeroadhere, sorry, I got to pronounce it right, FAE-350-1 structural film adhesive product. This is a new product offering for Park. So we announced this on May 9, just recently. It’s used for use in bonding of aerospace primary and secondary structures. So film adhesive is used in the production of composite structures. The main component is the composite materials, the prepregs that we produce. But film adhesives, not the same quite volume, but still significant are used in producing these composite structures. So the key thing is the customers, really all of them, I think, that biocomposite materials also use film adhesives to build – to produce their composite structures that they produce. So Aeroadhere, FAE-350-1 is a 350 epoxy-based formulation, and it’s suitable for all these applications.

And why don’t we go to the last item. The introduction of our new Aeroadhere product is an important milestone for Park as it represents a first offering to plan major new adhesive product line with more in the works and tend to come. So this is a big deal. This is kind of a whole new area for Park, even though it relates to the construction and composite structures. We’re a company that has been producing – sorry, prepreg materials, composite materials or composite structures, and materials on that as well. And now into film adhesives, which is a big leap for Park and a big top line opportunity for us as well, I would think. Let’s go on to Slide 32. Okay. Changing back to the number of kind of stuff, changing gears again. And there’s a reason for this, we’ll get to that in a minute.

Analysis of Park, cash and cash application. So let’s just kind of go through this math here a little bit, $105 million – $105.5 million, that was our cash that was just reported as of the end of the fiscal year. The transition tax installment payments remaining, $12.5 million. We spoke about this many times, that’s payable. Let’s see what those footnotes say, through 2025 dollar per share dividend that we just declared and paid $20.5 million. So the solution treater project for a – solution treater for the ADL project, if we do it, that would be $6 million. The AFP project, if we do it, that’s $10 million. We haven’t made a final decision on those things. But I’d say it’s more likely not. So we add all the things up, $49 million.

We subtract $49 million from $105.5 million, we end up with $56.5 million. That’s a conceptual computation, but it’s basically saying, look, this is kind of how much cash we have left after we take care of all these things, $56.5 million, that’s an approximation. So let’s – there’s a reason for it – for doing this, and I’ll get to that in a couple of slides. Let’s go on to Slide 33. Park’s balance sheet, cash dividend history and thoughts about capital allocation. So I got to remind you, we have 0 long-term debt, very pleased about that. Our cash dividend. So while others cut or canceled their dividends, we maintained our $0.10 per share regular dividend throughout the pandemic. Park has now paid 38 consecutive years of uninterrupted regular cash dividends without ever skipping a dividend or reducing the dividend amount.

On February 9, 2023, our Board approved a 25% increase in the company’s regular quarterly cash dividend going from $0.10 per quarter to $0.125 per quarter or $0.40 per year – $0.50 per year. Our total dollars, we got $8 million to $10 million per year. Well, why do we do that? So let’s go back to Slide 27, because that’s kind of why we did the analysis that we did in Slide 27. Originally, this was done with something we reviewed with the Board with a little bit more detail provided, of course. And we saw that our outlook for EBITDA, not our forecast, was about $35 million, we felt very comfortable increasing our regular dividend to about $10 million – from $8 million to $10 million per year. And one could have taken a position or argue that we could have done more.

But since Park tends to be a conservative company, we just said, okay, we’ll go to that $10 million or $0.125 per quarter regular dividend. We always could do more later if we want to. But see, this is really why we originally did the analysis on Slide 27 was for the Board to consider whether we should be changing our dividend policy. Now at the time, what we reviewed with the Board was more detailed than this, but this is basically the kind of analysis that the Board used to make the decision. We’ve had a long run with a regular dividend, back to Slide 33, we do not intend to disrupt that run. In other words, the point is that we feel very comfortable increasing the dividend that we’re not going to need to reverse that at some point.

Let’s go on to Slide 34. But again, just continuing with Park’s balance sheet, et cetera. So on February 9, same date, Park’s Board also declared special dividends of $1 per share, a total amount of approximately $20 million, which was paid – already paid on April 6, so that money is gone. Why do we do that? Now let’s go to Slide 32 because there’s a reason for Slide 32 as well. This is the analysis that we reviewed when we made the decision – the Board made the decision to pay the special dividend. And we felt that – actually, we spent a lot of time in this and we had advice from outsiders, investment bankers, did very careful evaluation. But we felt that this number, this kind of concept number of $56 million, let’s say, is a proper number for Park.

We felt comfortable with the $20 million or $20.5 million, $1 per share dividend. And that was based on a pretty serious thoughtful analysis, I must say. What about M&A? So good question. We’re not giving up on M&A. We’re still looking at M&A, but I think we’ve concluded that M&A is probably a less likely opportunity for the expenditure of our cash than maybe we originally thought. Why is that? Because there’s 2 types of things we’re looking at. One is something comes to us, it’s usually an auction that’s being handled by some banker. If you look at a number of these things, and the prices that they’re sold for, these companies sold for are significantly more than we would be willing to offer a bid. And we don’t have any regrets about that.

We think the world is saying and we’re saying we feel fine. We don’t have any regrets, fine about the valuations we came up with. But the outside world has a different opinion, and we’re not going to chase those kind of values. So that’s a little bit of an issue with the companies that are auctioned. Of course, when companies are auctioned, they’re not exactly what we want anyway. There’s – the company that is for sale is brought to our attention by an investment banker. The other thing we’ve been looking at is companies we target, we go after, that are not necessarily for sale. That is a little bit of a different kind of problem, which is that, if the owner isn’t willing to sell or doesn’t want to sell at the price that we think makes sense, then it’s not going to necessarily happen.

So we’re not giving up at M&A. We’re just looking at another opportunity now in the last couple of weeks that we’re just starting to look at. But I guess, a little less optimistic that we’re going to have an outlet for our cash with M&A. If we find something, would we be willing to finance? Sure, we’d be willing to finance if it makes sense for Park. So the good news, though, and this is, I think, the main point that we should make is that even though we may not be investing in companies via acquisition, maybe we will, but may not. There are many opportunities, very attractive opportunities, that are coming our way to invest in. Some of those were listed on that slide, that footnote 6, the slide regarding our outlook. Those opportunities, and we’re saying we’re not taking into account in the outlook computation and many more.

These things are coming our way, actually. And why? Is it just luck? I don’t know. Maybe we paid a lot of dues, we sacrificed a lot and overcame much so that we’re in a position now. We’ve earned that right to have these opportunities presented to us. And what I would say is the ROI on these opportunities for, let’s call it, internal investment on programs or projects, are usually much, much, much more attractive than the potential ROIs on the acquisitions by orders of magnitude sometimes. So that’s the good news is that we’re not out of opportunities for – that’s quite the opposite actually. But I think our focus is going to be on a different type of opportunity at this point. The $56.5 million number, we’re comfortable with that number.

We think it’s okay. And we think that we’ll be able to take advantage of some of these other opportunities. And like I said, if we feel we need to finance an opportunity, we’ll be willing to consider that as well. So just continuing back on Slide 34. Park has now paid $583 million or over $28 per share in cash dividends since the beginning of 2005. Our thoughts about cash and capital allocation, no Bucks, no Buck Rogers. That’s Tom Wolfe thing from The Right Stuff, yes, Right Stuff. So our version of that is no capital, no capital allocation. Some are along the way, someone has to generate the capital or there will be no capital to allocate. So there’s a lot of talk about capital allocation, and it’s all fine. It’s good. I’m not criticizing it.

But it seems what’s missing sometimes is, well, you have to generate the capital. Somebody has to do that. And it’s not something that easily done by a discussion at a business school. That requires, as far as we’re concerned, hard work and sacrifice. Let’s go on to Slide 35. How about Park? How has Park done in terms of generating capital? Well, how have we done? The company started by two guys in a garage in Woodside, Queens in 1954, with a few bucks they had left over from War Duty. Basically, they started with no money. Nobody ever gave us anything, nothing I can remember anyway. No, nothing special, but we paid that $583 million in cash dividends since 2005, so somebody at Park much have figured out how to generate capital over the years.

No capital, no capital allocation. So the fact that we generated capital makes the discussion about capital allocation meaningful and relevant. We hadn’t generated capital, nothing to talk about. So let’s not forget that part of the equation. Slide 36, the Park family culture eats strategy for breakfast. That’s a Peter Drucker thing. So at Park, we have a strategy, too, we’re not downplaying strategy, but it is our Park family culture, which makes us strong and allows us to endure. How do we generate capital at Park? We generate capital – how do we generate lasting value at Park is through dedication, through sacrifice, through perseverance. I’m not sure these things are really taught in these business schools. The capital allocation part of it might be taught, but how do you generate capital?

This is how we generate capital anyway. And you have to judge whether we’ve been successful. I think we have been, but that’s my opinion. Because of our ongoing staffing shortages, our film line and tape line people have been working 60 or more hours per week, week in and week out for over a year now. It’s not only film and tape, but we’re focusing on film and tape at this point. This is how we generate capital at Park. Let’s go on to Slide 37. So why do our people do such things? Why do they want to work 60-plus hours per week, week in and week out? How’s that work? A 12-hour – 5 days, 12 hours. So there are two shifts, two crews, day and night. So we got pretty much 24/5 coverage on those two machines, critical machines, the hot mill machines, film and tape.

So maybe why do people do such things? What? Because we’re nice people or something like that? We say nice things? Maybe because actions speak loud in the words. You know, came from Abraham Lincoln. I didn’t know that. I looked it up and apparently, he’s the one who first coined that phrase. It’s a good one. So when we – just when everybody was laying off their employees at the beginning of the pandemic, remember that, in some cases, by the thousands, we at Park laid off nobody. We kept all of our precious Park family people, even though we were told we were crazy to do so. So we’re in aerospace. Remember, the planes were flying, which you saw proud pictures of it, one or two, three people. Most of them were just parked and not flying at all.

So the industry was in terrible shape. I mean it just was – almost collapsed, the aircraft industry. But more than that was the fact that there was this great uncertainty about what was going to happen. We all remember that. People talked about Armageddon, the end of the days. So yes, things are really bad, but what was going to happen for the future. And a lot of people gave into fear, and I don’t blame them, and they dramatically reduced costs, laid off lots, lots of people. There’s this thing George Patton said, don’t take counsel of your fears. I think that’s the correct quote. But we didn’t take counsel of our fears, and we didn’t lay anybody off. Somehow we decided we’re going to stay with our people, and that’s the last thing that would go.

And remember the vaccine mandates where we were being pressured, pretty heavily pressured to fire people who dared defy the mandates. What did we tell our people? We said, no, we’re not going to fire you. It’s up to you whether you get vaccinated or not. We didn’t tell people they need to get that, that we didn’t tell people not to get that actually. We weren’t against vaccines. But we told people, no, we’re not going to do it. As a matter of fact, we said we’re not going to fire you. As a matter of fact we said in writing, over our dead body, just to make sure that they understood we’re not fooling around. And I meant that. I wasn’t – I meant that literally, over our dead body. If you want to have a culture which has any real meaning of power, you better be willing to live and die by it.

People have cultures. They have nice PowerPoints that some PR firm does to present a culture. But it’s meaningless unless you’re really willing to commit everything you got to, in my opinion. Otherwise, it’s a waste of time and it’s silly. Our people remember those things. I suspect they do and actions speak louder than words. So that may be why our people are so dedicated at least – example as to why are people so dedicated, because we’ve demonstrated with actions, not words, how important they are to us and how dedicated we are to them. Let’s go on to slide – our last slide. We’re just finishing up within an hour, Slide 38. If you want your people to love your company, better love them and it better be true love also. You can’t fake love.

Our people are family and we don’t turn our backs on family. Peter was right. So here’s a picture of our dedicated film line and tape line crews. These are wonderful, wonderful people. I really was very pleased when – I asked to take a picture of these guys, these guys and gals during shift change because that’s the only time we can get most of them in one photo. It’s really an honor for me to be able to work with these people. And actually, I was a little emotional. I got a little emotional when I saw this picture because they looked so happy. And they’re working so hard and there are so many nice smiles on their faces. So that meant a lot to me. I don’t know if it means anything to anybody else, but I just wanted you know it meant a lot to me.

So okay, thank you very much. We got one hour and one minute. We’re done with our presentation. So operator, if there are any questions at this point, we’ll be happy to take them.

Operator: Thank you, sir. We will now be conducting a question-and-answer session. And the first question comes from the line of with NR Management. Please proceed with your question.

Unidentified Analyst: Good morning, Brian and the team. Can you hear me, okay?

Brian Shore: Yes, you’re just fine, Nick. Yes. Thank you.

Unidentified Analyst: Oh, great, great, great. Just a couple of questions. If you could just give a little update and your thoughts on what’s going on with China and the Comac program. Just really haven’t heard much about in the press about that lately. Secondly, you’ve again laid out how Park is really a U.S.-based growth manufacturing concern. That’s the way I look at. I look at you as a growth stock based on the outlook. And so if we were to have some stutter steps here, would you still have an appetite for share repurchase if Mr. Market became silly at some point and the equity were to become depressed? And then finally, this may be a stupid question, if there is. Do you have any thoughts on the removal from the S&P Index? I know that’s out of your control. Do you have any thoughts on that would be appreciated? Thank you so much.

Brian Shore: Okay. Thanks, Nick. Comac, it’s funny that the Chinese are not as transparent. They’re a little opaque. And we follow news, you probably see the same things we see. And we haven’t seen much in terms of updates to the program. The programs are progressing now from our perspective in terms of material requirements. The ARJ21, that’s, at this point, really an aircraft that’s in full production. I don’t know if it will ramp up to higher rates. As I said, last year, I think they did 26 airplanes. So it’s small program, but still a meaningful program for us. And it’s also targeted for approval of our LSP product, which we’d be very happy about. The 919, that’s obviously the big one for the Chinese.

It’s a real prestige program. They’re going up against the 737 and A320, as you know. We’ll have to see what happens. I haven’t heard any recent new though, Nick. Although I would just go back to what I’ve said numerous times, which is that this is a big, big, big prestige program for the Chinese. And my bet is that they’re going to do everything they can to make it successful. The – let’s see. You had a comment about our being a growth stock. And I don’t remember what the question was there, but you did a – you can remind me, but buyback, you asked about buybacks. Yes. So is the market going to make us another offer we can’t refuse? Yes, we’re very open to doing buybacks. And I guess maybe you’re tying the growth outlook to buybacks, I think that was the question.

Yes. So actually something that we are thinking about, something on our radar screen, considering especially like I think what you’re suggesting the outlook is our – which will be valued properly, probably not. And that actually ties into the removal from the S&P small-cap index. And we were given no notice about it. You read about it probably the same time we read about it. It was very disappointing. Somebody made a comment, which I didn’t really appreciate too much. He said, well, we were deleted from the S&P Index, SmallCap Index, because we have – because our market cap hadn’t increased as much as it needed to or haven’t increased very much or something to that effect. And I thought was, well, okay, of the companies in the S&P SmallCap Index, how many pay cash dividends?

Okay. Second question – although which my guess is not too many, because smaller companies generally won’t pay cash dividends. Second question, of those companies in the SmallCap, S&P Small Cap Index, which do pay cash dividends, how many have paid $28 of cash dividends per share since 2005? Because obviously that has a big impact upon the value of the company. So very disappointed. We had increased our dividend, regular dividend. And that seemed to drive the stock price up quite a bit to, I think, the equivalent of high 15s if taking into account the $1 special dividend. Maybe 15, 80 or something like that. And then we did the – then the deletion occurred, we had no notice about it, and the stock went back down to where it was. So we have no control over it.

It’s just disappointing to us. What we’re going to say, it’s not fair, of course not. We’ve been in touch with S&P. They’ve been very polite and very nice, and they’re not very transparent about how they go through these decisions. But obviously, it wasn’t what we wanted, but we just have to keep going and we’ll see what happens. And hopefully, we have a chance to get back in the index, but that’s not really our main objective. Our main object is to realize the goals for Park. And Nick, did I miss anything? Did I cover all those questions or…

Unidentified Analyst: Yes. No, that’s pretty good. Thank you so mucj. I appreciate it. And keep up the good work.

Brian Shore: Thank you very much, Nick.

Operator: And the next question comes from the line of Matt Spiegel with GWK Investments. Please proceed with your question. Oh, excuse me. The next question comes from the line of Brian Glenn with Olcott Square Investment Partners. Please proceed with your question.

Brian Glenn: Hey, Brian, thanks for the always very thorough walkthrough.

Brian Shore: How are you, Brian.

Brian Glenn: Good. I have a couple of questions. So the first is on the MRAS, which I know was 3.5 in 5 years. And so are you able to discuss, and you probably can’t go into detail, but to discuss the mechanisms for the reprice, which I think, correct me if I’m wrong, would be 2025?

Brian Shore: That’s the cast in concrete. Yes, we have a price increase. All of our pricing goes up in beginning of calendar 2025. That was part of our 10-year LTA. So that’s kind of built in. Now when we did the 10-year LTA, we were using inflation assumption of maybe 3%. Raw materials, we have LTAs from our suppliers and raw materials, except for one where there’s kind of a risk-sharing arrangement for one of the raw material components, but it’s really a non-raw material area of our cost that we are at risk for. We assumed about 3% inflation year-over-year. And obviously, that has not been the case in the last like 12 months or so. So that’s where we have the risk. And the price increase that goes into effect January of 2025 use that 3% assumption.

It’s not – I just want to be clear, it’s not an index. In other words, it doesn’t change based upon what inflation – what happens with inflation. I’m just saying when MRAS and Park negotiated the agreement, we agreed that we would assume a 3% inflation year-over-year in order to come up with the pricing.

Brian Glenn: Okay. Yes, thanks for that. I appreciate it and understood. And then my second question, it’s twofold. I guess there’s a lot of talk on the impressive dividend record, and it certainly is impressive and large and respectable and appreciated. Does the Board, to the extent you can share, does the Board have discussions around total shareholder return at all? Or is it mainly just around dividends? And then related to that, is there anything – I know a lot of people have asked over the last few quarters and years about dividends versus buybacks. Is there any other factors that would influence that decision related to you or the Board’s preference for amount of shares outstanding, trading liquidity or anything like that or ownership interest that may bias you guys one way or the other? Or is that just not a factor?

Brian Shore: So Brian, it’s all a factor. And maybe I didn’t explain it that well. But when we went through the analysis where we decided to do the $1 dividend and also the increase in our dividend, we had discussions about all those things, total share of return, buybacks, M&A, investment – using our cash for internal investment. So I wouldn’t – there’s nothing that’s off the table. Everything is being considered and everything is being evaluated. In our discussions, all these things are considered. So if I implied that it’s only a one track thing, only about dividends, I didn’t mean to do that. Probably the reason we focus on dividends in the presentation is because we have the recent increase in the regular dividend and also the special dividend.

Brian Glenn: Understood.

Brian Shore: Yes, Brian, let me just add. I just want to say again. So I think the Board is pretty sophisticated about this stuff. And if there’s some belief that’s not – I think that’s not correct at all. But in addition to that, we do get regular advice from outside experts, investment banking people that are the tops of their firms, like CEO levels, president levels at their firms. So I think we’re well advised and I think we’re well aware of all the different factors that you mentioned in terms of the total shareholder return.

Brian Glenn: Yes, yes, understood. I mean I think if, and this is just me, but if you look at your outlook and maybe that’s hit one day, maybe it’s not, I understand it’s not a forecast and there’s a lot of levers there. It seems to me that there is substantial return that could be realized over time by retiring a share and possibly higher than the return on assets or return on invested capital rate of the firm historically. And I know that’s changing with the footprint and the new plant coming online and some of the internal projects. But that’s just my own observation and just something that I believe to be true. But I do appreciate you doing this walkthrough. It’s always appreciated, and I find the level of detail you guys put into this presentation extremely helpful and appreciated.

Brian Glenn: Okay. Well, thank you very much for your input, Brian. Thanks, again.

Brian Shore: Thank you.

Operator: At this time, there are no further questions. And I would like to turn the floor back over to Brian Shore for any closing comments.

Brian Shore: Okay. This is Brian, again. Thank you very much for everybody, very much for listening again. These calls are – I try to make them quick and I try to rush through these things a little bit, but I end up going hours, so I appreciate you hanging in there. And feel free – if you have any follow-up questions, feel free to give us a call and feel free to give Matt or me a call. Otherwise, we’ll be talking to you pretty soon because our first quarter report is at, I think, the beginning of July. Thanks, and have a great day. Bye.

Operator: Thank you, everyone. This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.