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

Brian Shore: Thank you, operator. This is Brian. Welcome, everybody. And I want to introduce Matt, of course. He’s with us, our CFO, as usual, Matt Farabaugh. And also, we’d like to take this opportunity to wish you and your families a very happy new year. All the best to you in 2024 it is, right? Yes. We just announced our Q3 earnings, I guess maybe about 45 minutes ago. So you want to pick that up. And also, in the earnings announcement, there’s instructions as to how you would access the presentation that we’re about to go through. You want to do that as well. The presentation is pretty long. Sorry about that. I really was thinking I was going to do this one, so I’m going to make it shorter and end up being longer. It’s hard for us, or at least for me, because it just seems like sometimes there are important things to cover.

We don’t do the sound bites. We don’t hire IR firms to do a little clever, kind of slick things. And I don’t know why you’d want that anyway, because I would think you’d want to hear it from management. So we’re not as polished. It takes a little bit longer. It’d probably take about 45 minutes or so to go through the presentation, so just be advised. We might skim through some of the items, though, that we’ve gone through previously. There are some items in this presentation which were in the Q2 presentation as well, so that might help us a little bit. Before we get started, I just really want to give a shout-out to Donna because Q3 is a bear for us because our holidays are kind of a mess. Not just the presentation, we’re closing our financials, so Matt as well.

But Donna helps me do all the PowerPoint stuff. I’m not even dangerous in PowerPoint. I can’t do it at all. So every third quarter, she’s working through holidays. Before we get started, note again it’s our 70 year in business. It’ll be our 70 anniversary is March 31, so I guess, what is that, a couple months off? It’ll be 70 years if we make it that far. When do we get going? Slide two is our forward-looking disclaimer language, so we’re not going to go through it. Please call us if you have any questions or let us know if you have any questions. Slide 3, table of contents. First thing is the investor presentation. Appendix one, supplementary financial info, which we’re not going to go through either, but if you have any questions about it, please let us know.

Let’s go on to Slide 4, take a little bit longer. So Q3, let’s go through it. Sales, $11 million. Why don’t we compare things to Q2? $11.639 million. So that’s a fairly low number in terms of sales, even lower than Q2, which was off. I think you probably have a good understanding of Q2 and we’ll go through the explanation of Q3 as well. And look at the margins. I highlighted — we highlighted the margins, both the gross margins and EBITDA margins, so you can see the comparisons to Q2, which are not really favorable, but as I think we tell you a lot, we don’t like them when we see our gross margins below 30%, so they’re certainly below 30% this quarter, and our EBITDA margins are not really that desirable for us anyway either. Observations and thoughts about our Q3, so what’s going on here?

Well, the MRAS inventory burn-down, which we talked about at great length in our Q2 call, that continued through Q3, and we predicted when we did our Q2 call, we told you, we predicted that. Is that MRAS inventory burn-down expected to continue into Q4? No, it’s not. It’s over, and we’ll get into that in the presentation. But no more burn-down. We will discuss the MRAS inventory burn-down in greater detail throughout the presentation. Let’s go to Slide 5. Let’s talk about the non-GE aviation sales. We talk a lot about GE aviation. Non-GE aviation sales were only $7.5 million in Q3, and that compared to $9.4 million in both Q1 and Q2, so that was off as well. Although there almost always will be some degree of quarter-to-quarter variability in our business, the trend is actually quite good for non-GE aviation sales, so we feel pretty encouraged about that.

But what is the reason for, or are the reasons for, the quarter-to-quarter variability? There are numerous reasons, but for numerous reasons, the programs we’re on will be active in one quarter and may be inactive in another quarter, and we really have no control over that. There’s very little we can do to control the timing of when programs that we are on will be active or inactive, and it would really be a waste of our time to even try to do that. It would exercise imputility, as we say here. But at Park, the key thing is we focus our energy and efforts on getting on new programs, which we believe will be supportive of our long-term objectives rather than attempting to try to control the timing of programs already on. So let’s keep going, Slide 6.

But nevertheless, this quarter-to-quarter variability does come with less than optimal visibility often, and it does require us at Park to be very agile and fast on our feet with our supply chain, with our inventory and our production management activities. So were there any new obstacles to completing sales in Q3? Yes, there were actually, and we’ll get to that in a minute. But let’s not talk about the bottom line. We’ll talk about the top-line. Why were the margins in Q3 lower than Q2? We already showed you the comparisons. Well, there’s a few reasons. There was a less favorable sales mix in Q3 compared to Q2. Q2, the sales mix actually was quite good. Q3, not quite as good. But as I explained above, we have little to no control over which programs are active and which programs are inactive on a quarter-to-quarter basis.

That’s kind of rolling the dice a little bit if you look at it short-term. Would the higher margin programs be active in a quarter or less active? That we have almost no control over. Again, our objective is to get on more programs. The ones that we think are good programs, the better margin programs, and the timing is up to the customer or God or something outside of our control. The second item was lower sales. We talked about in Q2. That affects our bottom line. Lower sales in Q3 compared to Q2. That was a big one. Even though we fully anticipated that Q3 sales were going to be light compared to Q2, we intentionally ramped up our costs in Q3 to meet the reduction requirements of expected key program ramp-ups. That was something we decided that was intentional.

We’ll talk about that number of additional, again, throughout the presentation. Why don’t we go on to slide 7? We saw that freight train coming. That’s an analogy we use in our Q2 presentation. The freight train coming, meaning the program ramp-ups, we wanted to make sure we were ready. A little ramping up our costs took some conviction and maybe some guts, a little bit anyway. It’s hard when you see it’s not going to be a good quarter sales-wise to ramp up your costs. It turns out, for sure, no guarantee, but we clearly were right with the benefit of hindsight to do what we did in ramping up our costs in Q3. We’ll explain that as we go through the presentation. It was a good move on our part, I would say, to do what we did. Other considerations related to Q3, how things are going with supply chain staffing, freight disruption.

We talk about this a lot. You might be tired of hearing about it, but we’re sometimes tired of dealing with it. Supply chain staffing challenges continue, but they seem to be improving to some extent. Or maybe it’s more that we have become more effective with dealing with them. Now, I just want to point out, we’re not talking about supply chain issues for the whole industry. We’re talking about our supply chain. The whole industry we’ll talk about later on. That’s probably more of a factor for us, anyway, in terms of the opportunity in the industry and how they’re affected by supply chain constraints. International freight, well, that’s a little bit of a different story. There’s a war in the Middle East, which occurred after the end of Q2, I guess during the first part of Q3, which we didn’t see coming.

But it’s causing serious disruption and challenges for international freight, disrupting, sorry, slide 8, disrupting shipments to customers in the Middle East and Asia. Yes, we’ve got customers in Turkey and Israel, important customers. So you can only imagine what kind of chaos that is. And then we also have customers in Asia, where there’s not a war in Asia, not yet anyway. Hopefully it’ll stay that way. But nevertheless, the sea freight goes through the Middle, it’s supposed to go through the Mid-East. I guess now it’s going through the, what is it, the Hornets of Africa. It’s way out of the way. So that’s not a lot of fun. Total shipments in Q3, about 560,000. I don’t have it in front of me, but I think it was only about 220 in Q2. So in other words, Q2, we’re really getting much better, but we have a big setback in Q3.

And that’s almost all related to international freight disruptions. So there you go. Our margins, also our margins can be affected by inflation. I know inflation is supposed to be all gone, but we’re not, I don’t buy that. And the cost, and cost related to operating our recently commissioned new plant in Kansas. This is all planned and expected, but obviously you don’t turn a plant on and you’re at full capacity. It’s not how it works. Let’s go on to slide 9. Okay, this is our historical fiscal year results. And for perspective mostly, let’s talk about it a minute. Normally we don’t spend much time on this one. Look at the sales in ’17, ’18, ’19, ’20. Like it kept going up like $10 million, $31 million, $40 million, $51 million, $60 million, really nice.

And then what happened is this little thing called a pandemic. So sales were really badly affected in ’21, and ’22, ’23, and ’24. If you look at our forecast on slide 36, ’24 is going to be, our forecast is something like ’23, like $55 million top-line, $11.5 million EBITDA. So we got three years where we just haven’t been able to break out. The pandemic, the disease part is mostly over, but boy did we screw up the global economy, supply chain, staffing. We have supposedly full employment, but so many people left the workforce. I don’t know how that problem gets solved so easily. You probably know better than I do, but at least from my perspective, it seems like a problem that may not get totally solved so easily. But anyway, if you look at our top-line numbers, you can kind of see the pattern there.

Now we’re hoping, and we have recent hope, that we’re going to start to move that we’re going to start to have that growth dynamic kick in again starting in this fiscal year, return to the growth dynamic. But let’s go ahead and let’s talk about, let’s go on to slide 10. Quickly in this one, we always cover our balance sheet and dividend stuff. So we got zero long-term debt, $74 million cash we reported. But don’t forget, there’s $9.3 million of remaining transition tax installment payments available through June 25. That relates to repatriation tax. I think it was based on the Trump tax law, which was very good for Park, but nevertheless, we have some installment payments. So you can think about how you like. We kind of think about that as almost like debt, like we owe that money.

So when we think of our cash, we think, well, we still got to give $9.3 million of these transition tax installment payments to the government. That’s in addition to our regular tax payments, which we’re not talking about. Dividend, Yes, you know better dividend. We paid a lot of dividends. Spend for eight years $588 million, since 2005. And like I always like to say, that’s a hell of a lot of money for a little Company like Park. Go on to slide 11. This is just kind of a reminder as on May 23, 2022, the board authorized a buyback of 1.5 million shares. We’ve purchased about 221,000 shares so far. It looks like we have about, what is it, 1,279,000 shares still available, purchased under the authorization. We’re not saying we’re going to buy stock or not, but we just want to remind you that the authorization is out there just so you remember that.

Let’s go on to slide 12. Okay, every quarter we tell you about our top five. This is a slide that Donna prepares. We do a little nice picture of one of the programs that these customers run. AE Aerospace, so they’re a contractor for Airjet and Airjet relates to the PAC-3 missile. We talk about it a lot. Aerospheres, they’re a contractor for Israeli aircraft and that relates to the G-280. So that’s a Gulfstream airplane, but Gulfstream has some contract with Israeli aircraft under which Israeli aircraft produces the G-280 airplane. Kratos, you know all about Kratos. We talk about it almost, I think, every quarter featuring this Mako unmanned tactical drone. Middle River, every quarter of course. 747-8, that’s I think our favorite airplane. And then Nordam, that’s the Global 7500.

They make some components for the engines for the G-280. So that’s Global 7500 with our materials. Let’s go on to the next slide. Slide 13. Our pie charts, I always like these. I don’t know if they are useful to you, but I kind of think that Talley’s had messages in them. And if you look at the first nine months of this year, you’d say, Yes, commercial a little bit off as compared to the prior two years. And that would be based upon what? That would be that burn-down. That’s causing commercial to be a little bit like in the fiscal 2024 first nine month pie chart. Let’s go on to slide 14. So Parkloves, Niche Military Aerospace Programs. This is Elena’s project every quarter. Come up with some kind of fun, interesting, and cool examples of military programs run.

The pie chart’s interesting. Let’s talk about that for a second. Rocket nozzles, drones, structures, and radomes. Those are niche markets for us. But even the structures we consider to be a niche market. Quickly, the SpaceX Falcon 9 launcher with Dragon spacecraft materials and ablatives. The Northrop Grumman E-2D, that’s parts and materials. And both the Black Hawk and the Lockheed G-5, two very different kinds of aircraft, but those are multiple materials. And the Mk-56 vertical launch system, that’s for the Navy, and those are ablative materials. Let’s go on to slide 15. Let’s talk a little bit about trends in the aerospace industry. Commercial aerospace markets. Domestic air travel report fully recovered. That’s good news for single aisle like the A320neo aircraft.

International travel is reported to be approaching pre-pandemic levels. Also very good news for long-haul wide-bodies like the Boeing 777X. I’m a little biased because I keep talking about programs we’re on. Not surprisingly, demand for commercial aircraft is very high. Supply chain and labor shortage challenges continue to be the biggest headwind for the commercial aircraft industry. But there are recent reports of supply chain stabilization and improvement. But I’ll tell you what, we’re not completely convinced. We’ll see about that. It seems like it’s inconsistent. Some places may be better, some places may be not better. But notwithstanding these ongoing supply chain constraints, many now believe that 2024 will be the year the commercial aircraft industry breaks out and ramps up production in earnest.

Beginning of every year, or calendar year, there’s always the prognosticators and the groups and stuff that have rebuttal reports. But I’ve read a number of them recently, aerospace analyst types that are saying that this year may be the year that commercial aircraft industry really breaks out and kind of gets past the supply chain constraints. We’ll see about that. But I think there might be some reason to be optimistic. Let’s talk about that. Let’s go to slide 16. The recent impressive ramp up of A-20 neo-family aircraft deliveries. Now this is not prognostication. These are facts. We’ll get to that in slide 21 and 22 regarding that delivery ramp up. It’s supportive of that view. Now, she would use the A-20 neo-family aircraft deliveries as a proxy for commercial aircraft industry.

I don’t know, but considering that that program is expected to be the largest commercial aircraft program in the history of the universe, maybe we should consider using it as a proxy. Now military markets, proxy for the industry breaking out, let’s call it, the commercial aircraft industry. Military markets, so the global demand for military defense hardware including missile defense systems such as the FAC-3 missile. Again, we kind of bias. We talk about the programs we’re on. Quite high and elevated by the wars. Extreme tensions in the globe. Let’s go on to slide 17. Also, high level of interest in unmanned or potentially autonomous systems such as the Kratos Valkyrie. What’s going on here? I’m not an expert, but I’m just wondering. You got missiles, missile defense, drones.

Maybe this is to avoid boots on the ground so we could do our wars without getting people in the middle of them. I know it’s kind of a cynical way to look at it, but you probably have a more enlightened opinion than I do. The markets for military defense hardware are also affected in some cases constrained by international political and budgetary factors. We read about that stuff every day. In some cases, supply chain and labor constraints continue to limit the ability of military defense OEMs to meet the market demand for the hardware. A little picture of the Valkyrie here, which is nice. The last item on this slide, we’re on slide 17. December 17, 2023 was the 120th anniversary of the Wright Brothers’ first powered flight. Happy anniversary, aerospace industry.

Let’s go on to slide 18. You’re familiar with this slide if you’ve listened to other presentations. We go through this every quarter. This just gives you context. GE aviation programs are really important. We talk about them. This is just background. We’re not going to go through the programs. We have a firm pricing LTA through 2029 with Middle River Aerostructure Systems, a sub of ST Engineering Aerospace. What is that? I don’t get that. All these programs are GE aviation programs. What’s going on here? What’s going on here is when we got on these programs, Middle River MRAS, which is an old Glen Martin Company in Baltimore, then Lockheed Martin. They were part of GE aviation. When we got on these programs, they were part of GE aviation. I remember about four or five years ago, I’m not sure, I remember GE aviation sold MRAS to ST Engineering Aerospace, which is a large Singapore aerospace Company, but we’re still supplying it to those GE aviation programs.

Actually, the Redonda factory, that was an agreement we reached with GE aviation to build that Redonda factory. They wanted their Redonda seed because they’re betting the farm with us being sole source on these programs. I won’t go through the programs. If you have any questions about them, let me know. Let’s go on to slide 19. The first two items, again, programs. We’re not going to go through them. Just let us know if you have any questions. Third arrow item, MRAS qual of three park proprietary film adhesive formulation product forms in progress. That’s new. That’s interesting and pretty great for park. Park MRAS LTA through 2029 recently amended to include the three park film adhesive product forms. For composite bond and metal bond, that’s really great for park.

Life of program agreement requested by MRAS and ST, they both said, Yes, 29 is nice, but we need a commitment for that. The agreement is in progress. What’s that agreement worth to park? I don’t know. You tell me. Slide 38 has the analysis of the revenues, annual revenues for the GE aviation programs. Life of program, I don’t know. You tell me. 2045, 2050. These airplane programs are just starting. We’re so lucky, so fortunate that the programs are on. They’re new programs. They’re going to go a long, long, long, long time. Very lucky. 747, that program ended. That’s sad. The other programs are on now. Have a long way to run. Slide 20. Okay. We’re going to go through some of the programs. We’ll try to skip through some of this or skim over it because we covered every quarter.

Let’s cover the high points. First of all, A320 NEO, that’s the big dog. That’s the big one. That includes this whole A320 NEO family. Huge backlog. Huge. 6,750 for airplanes. That’s a backlog. That doesn’t include all the airplanes that have been shipped. Airbus continues to say they’re going to be at 75 per month production and deliveries in 2026. Are they going to make it there? Let’s go on to slide 21. Let’s think about that. How’s Airbus doing so far with their planned A320 NEO family aircraft production ramp-up? Pretty well, actually. According to reports, 73 deliveries in December. That’s a lot. An average of 57 per month in Q4 of ’23. That’s a lot. And 563 total in calendar year ’23. That’s a lot. That’s an average of 47 per month in calendar year ’23.

Let’s get some perspective. What’s the history? ’18. You can see what’s going on here. They’re ramping up in the pandemic. Let’s talk about — Let me talk about per month. 18, 32 per month. 1947 per month. And then, oops, we got the pandemic. 2036, 2138, and 2243. Airbus said they wanted to maintain 40 through the pandemic. They almost got there. A little bit light in 2021. But they did keep some production going. Good for them. Now, let’s take a look at something else. It was 563 in ’23. 561 was their big year before… Sorry, 19. 561 was their big year before the pandemic. We just eked out in ’23, 561, which is a big year. That kind of says things are getting past the pandemic. Now we’re seeing a little supply chain stuff and everything else that’s holding things back.

And the other thing you want to look at is that it wasn’t level at 47 per month through calendar ’23. 73 in December. 57 in the last quarter. I would say, Yes, during the year, things were moving up. We’ll have to see how things work out as we go forward. I think there’s actually a comment about that. Let’s go on to slide 22. So for the first… In ’23, calendar ’23 for the first time since the beginning of the pandemic, Airbus was able to return to those A320neo family aircraft production and delivery rates to those pre-pandemic rates. What do you call it? Italics, I guess? A very key milestone and accomplishment for Airbus. Good for them. Now, this is what I was thinking about. There could be monthly ups and downs. There will be monthly ups and downs for A320neo aircraft family deliveries.

But it’s quite apparent, at least to me anyway, that ramp is real and not going away. I wouldn’t be surprised in the first couple of months of the ’24… I don’t know. I don’t have any information. I’m just speculating. It could be a little light, but that’s how it often is. They push a lot of airplanes out at the end of the year Clearly, based upon the huge backlog, though, Airbus would be producing these aircraft at a rate of 75 per month already, if not for supply chain constraints. And by the way, just FYI, according to reports, Airbus booked 257 new orders in December of ’23. That’s a lot of new orders. It booked an unheard of 1,693 new A320 family aircraft orders in ’23. Those are just incredible numbers. We’re so fortunate to be on that program.

Just luck, really, I guess. Slide 23. What about those engines, though, for the A320neo? Boy, we lead a charmed life, I’ll tell you. So remember that there are two approved engines for the A320neo, the LEAP-01A and the Pratt 1100G GTF engine. And we only supply into the LEAP-01A, not the Pratt. This is what I was talking about. We lead a charmed life. Because the LEAP-01A market share has been hovering about 60% for the last couple of years. Let’s go on to Slide 24. What happened? It all changed. LEAP-01A had broken out as a clear market share winner for the A320. According to this December ’23 edition of Aeroengineers, that’s our Bible for a huge amount of data in this monthly publication. CFM, LEAP-01A market share, firm orders for A320neo aircraft only 65.6% as of October 31.

Well, how the heck did that happen? The thing is, there’s just so much balance in that market share with over 12,000 firm engine orders between the two engines. And you were 60%. How the heck do you get to 65.6% in just a couple of months? It’s incredible. At the delivery rate of 75 A320neo family aircraft per month, that 65.6% market share translates into 1,181 LEAP-01A engines per year. What’s it worth to park? We’ll talk about that in Slide 38. We’ll get there. Slide 25. There are also currently 8,150 firm LEAP-01A engine orders. That’s a lot of engines. What are those orders worth to park? Look at that Slide 38. You probably save about a quarter billion dollars. There’s a couple of things. That’s going to be deliveries past 2029, so that assumes that we’re still in the program for that.

My guess is we will be. I also guess that the pricing might go up a little bit after 2030. Just round ballpark numbers. If you want to talk about LIFA programs in 2045, 2050, you can do that math. I’m not even going to go there. What happened? Why did the market share of firm engine orders shift so abruptly and dramatically in favor of the LEAP-01A engine? We talked about this last time. We won’t dwell on it too much. This is all in the news. You can read about it yourself. Serious issues with the Pratt 1100G engine. These have been extensively reported, so we’re not going to cover them here again. Why don’t we just go on to Slide 26. The top item is actually a new one, so we’ll talk about that. FAA just published a new proposed rule on December 11, 2023 requiring the inspection of additional Pratt 1100G parts which could be affected by the powder metal issues.

That’s kind of new news. What are the full implications? Hard to say. Will it lead to further market share gains for LEAP-01A? I don’t know. What do you think? Meanwhile, CFM is planning for induced upgraded components for the LEAP-01A engine. You see what’s going on here? Pratt is really struggling. You have to feel sorry for them. It’s a really difficult problem. On the other hand, LEAP is kind of making improvements to their engine to actually improve durability. Let’s go on to slide 27, please. We’re continuing here on the update. This is still on that A320 family, the A320XLR variant. It’s supposed to be entered service second quarter of 2024. That’s pretty much around the corner. That’s really nice. That’s exciting for Park. That’s good news.

COMAC 919. Let’s just skip down to the last couple items. They recently made the first flight outside mainland China. We’ve got to put them for rent. It’s Hong Kong. I’m not sure that’s considered mainland China. I think it might be. Anyway, it’s news. These COMAC airplanes are thought of as mostly for the Chinese domestic market. They recently unveiled a stretched and shortened variant of the airplane, at least plans to produce them. That’s really exciting. COMAC is not sitting still. They’re doing more development work with this aircraft type. Let’s go on to 28. Another Chinese COMAC aircraft, which is a regional jet. Last check item. COMAC recently delivered its first two ERJ 21 converted freighter aircraft, which is nice. COMAC hailed this as a solid step forward for China’s aerospace sector.

Any history buffs? Does that sound like anything to you? You ever hear of the Great Leap Forward? Do you think that’s a coincidence? I don’t know. I have no idea. When I read that, I thought, well, it kind of sounds like a great leap forward. If you don’t want to know about that, you might want to look it up. Let’s go on to slide 29. The 777X aircraft. This is an exciting program for Park. It’s starting to actually happen. We expect to ship approximately 2 million of materials for this program in calendar ’24. Boeing said that it will be certified in ’25. They’re building ahead, of course. This is important. With the cancellation of the 747, the 8380, this 777X occupies unique space in the long haul, high payload capacity, wide body aircraft market.

We’ll likely continue to do that for a long, long time. Why is that? Because nobody’s planning anything to compete against it. It could be a significant program for Park. And then last, we always talk about the legendary Boeing 747. Thank goodness for spares. Let’s go on to slide 30. We have a G-Aviation jet engine program sales history and a forecast estimate. This is the sales history. Look at the right-hand column. Q1, $6.2 million. Q2, $3.1 million. Q3, $4.15 million. Q2 and Q3 were those burn-down quarters. Q4, we got booked $7.5 million. So much for the burn-down, I would say. $7.5 million. Go look through the quarters. Is there any $7.5 million quarters? I don’t. I think there were a couple before the pandemic that were at that level, maybe two quarters.

But you have to go back and look at it a little further in history. So goodbye MRAS inventory burn-down. I would say that’s relatively good news for Park. And we predicted this, but we’ll get to that in a minute, I guess. Slide 31. The sharp drop-offs in Q2 and Q3. G-Aviation jet engine program sales. It’s all about that burn-down. The MRAS calendar year ’23 bill plan. That’s their bill plan, not ours. Translated into about $23 million of Park G-Aviation program sales. We covered this last time. So what happened? Why were our sales less than that in Q2 and Q3? Well, we already told you the answer. That’s highlighted at the bottom, the burn-down. It explains the whole thing. Let’s go on to slide 32. So will this kind of disruptive inventory burn-down happen again?

I think so. It likely will. It’s happened before. It will happen again. There may be some, likely will be some degree of quarter-quarter volatility in our G-Aviation program sales because of inventory management challenges. Maybe somewhat of a rollercoaster ride from time-to-time. So we talked about this at some length in Q2. Just talked about the aerospace industry in general. How it has this propensity to have inventory management challenges. And we can’t do anything about that. We decide to be a supplier to that industry, we have to work with it. We can complain about all we want, but it’s a total waste of time. We’re happy to ride the quarter-quarter G-Aviation program sales rollercoaster and face the challenges presented by it because to us, the overridingly important consideration is the long-term outlook for the G-Aviation program sales.

As explained on slide 38. But the rollercoaster ride does, this volatility does place additional pressure on us at Park to be agile, nimble, and fast on our feet with our supply chain inventory and production management activities. We’ve got to be able to respond quickly. And that’s kind of our calling card at Park. That’s what we like to do. Slide 33. So we’re still on the burn-down. Sorry, it’s such a big deal and I spend a lot of time on it. But where are we going with the burn-down? Well, in our Q2 presentation, we predicted that the burn-down would likely be completed in Q3 as that the Park inventory carried by Amherst would be normalized by the end of Q3. Based upon our looking for Q4, that prediction was obviously correct. So we guessed right on that one; oone more consideration regarding inventory management.

As a general matter, it’s very important to avoid overcorrecting and overshooting. Doing so can create additional volatility with increasing sine wave amplitudes and inventory swings. Now in our Q2 presentation, we indicated this was a concern of ours. And if our concern proved to be well-founded, it could result in a significant spike in demand in Q4 and into fiscal ’25. We told you that in our Q2 call. On top of let’s go to 34, based upon our GA vision program, booking for Q4, that concern was obviously well-founded. Our decision to ramp up our costs in Q3 in order to be prepared for Q4 and spike in demand was obviously the right decision for Park. Bonnie, I remember a few months ago Mark said to me that he just got nervous. And I said, what do you mean?

He said, well, we try to track the inventory and it seemed like the inventory has burned down a lot and these programs are ramping and he said, boy, he’s concerned there’s going to be this spike and we could get overrun. And he was right. And obviously we decided not to get overrun by increasing, by staffing up and building up our costs in Q3 so we could be ready for Q4. So what do we think about all this? I know it sounds a little bit, kind of smart-alecky, but we think it’s mostly just noise and static. We think the freight train, the Juggernaut, has come down the tracks at us 100 miles per hour. It can’t be stopped. So we’ll talk about it on slide 38. We better be ready or we will be overrun, just like Mark was saying to me. Slide 35. Just FYI, the ’24 MRES bill plan, the air is not ours, translates into $28 million of 24 PARG aviation jet engine program sales.

That bill plan is a year old, so I think they’ll probably update that bill plan soon. Let’s see what happens. Maybe it’ll be higher. I don’t know. Let’s go on to slide 36. So now let’s talk about PARG as a whole. We have the history just for perspective and you can see Q1, Q2, Q3 and you see how weak Q2 and Q3 were because of the burn-down and other factors we described at the beginning of the presentation. What are we looking for Q4? Well, about $15 million to $16 million. Remember $7.5 million for GE aviation programs. That would be about $7.5 to $8.5 for non-GE aviation. Talking sales and EBITDA, $3.2 million to $3.4 million. That’s just doing the math really. A lot of variability in EBITDA, base to bond, which programs are active, that kind of thing and the timing of when additional costs get legged in.

Well, that’s the best guess we can give you. And then we talk about the total for the year and that’s just kind of adding up the first three quarters plus the forecast for Q4. So nothing but just doing the math there. Looking at the ’24 total compared to ’23 total, the top-line is about like ’23 and the bottom line forecast is about like ’23. ’24, we’re kind of stuck in the mud as compared to ’23 but looking for that breakout that we were talking about going forward. Slide 37, following this are updated. Okay, we won’t spend a lot of time with the preamble, the preliminaries here. We went through this for the last two quarters. This is our outlook. Very important stuff, very critical stuff for both GE aviation programs and parks generally. So we think that the outlook is actually more important and meaningful than the quarterly forecast we gave you, even though we did give you a quarterly forecast.

What’s the timing for the outlook? People always ask that. We don’t know. We said the freight train is coming, can’t be stopped, better be ready. The Airbus CEO said they’re going to be at 26 in 2026. So I don’t know. I’m not in a position to second guess him. Why would I do that? Let’s go on to slide 38. So here’s the juggernaut. This is the GE aviation jet engine program’s revenue outlook. I’m not going to go through it because we went through it. There’s hardly any meaningful change. There’s a little fine-tuning from Q2. The main thing we covered in Q2, I think, went through each program in detail during our Q2 call. So if you want, you can go back and listen to that. But the main thing we’re trying to convey is that these forecasts are not aggressive.

These are conservative. We went through each item, each program. The revenue per unit, we know that information. We have that from our customer. So the only question is what do we assume in terms of energy units? And we went through the explanation of that in Q2. And like I said, we think they’re pretty conservative. It ends up at $55 million based upon the assumptions that are listed below, which we will not go over. But you can read them. If you have any questions about them, let us know. Slide 39. This is the outlook for all of park, not just GE aviation. Sorry, we’re running long, but we’re almost there. And this is identical to the slide that we provided to you in Q2, which is really important. So we wanted to provide it again, although there’s no change.

The math is all explained in the footnotes. If you have any questions about it, just let us know. But we’re saying the outlook is about $150 million sales and $36 million or $37 million. But this is an outlook. As we say, it’s not a forecast because this does not include anything other than the programs that we’re sole source qualified on and assumption of a small increase in our non-GE aviation sales baseline, which is $32 million in fiscal ’23. So we assume that’ll go up to $40 million over the outlook period, which we think is actually kind of a walk in the park. I hope that doesn’t sound arrogant, but that’s how we look at it. So let’s go on to slide 40 is just the footnotes for explaining the math, how we did it. Pretty straightforward.

Slide 41. So these are examples of programs that are not taken into account in the outlook. Like I said, not a forecast, an outlook. Some of these programs will hit. Some probably won’t. But some will, I think. We just can’t tell you which ones. But I do want to highlight, we’re not going to go through them all because they’re really the same as we covered in our future presentation, except there’s a new one. Major new manufacturing project is shown on the following slide. So let’s go into this one. This is actually a big deal. Just recently came up. Major new manufacturing project initiated for park requested by a highly motivated long-term large customer. We believe the project has a high degree of likelihood to proceed. Why is that? Because there’s a motivated customer that wants it to proceed.

It’s extremely confidential. So I wanted to tell you about it. We wanted to tell you about it because it’s a big deal, but we can’t tell you anything about it, anything about any details. But just to give you a perspective, in order to do this, we need to build a new or purchase a new factory for the project. Size, 30 to 50,000, probably closer to 50,000 square feet. Capital estimated $6 million to $10 million, an estimate. For a large workforce, that’s the hardest part for us. I won’t give you the number, but it’s a lot of people. Now we’re looking seriously at automation to reduce the size of the workforce, but that would increase the capital spending automation. Slide 43, preliminary estimate of revenues for the project, $20 million to $30 million per year range.

This is not, we’re not talking speculation. I wish I could tell you more about it. I can’t. We’re not talking speculation about the revenue opportunity. There’s lots and lots and lots of detail behind that. And it’s probably more than 10 years, probably life of program. Again, whatever, 20 years, 25 years. So it’s a big thing for Park. High priority, potentially very important project for Park and our customer. Let’s go on to slide 44, a little bit of a change of pace here. We haven’t talked about the James Webb Space Telescope for a little while. Revelations for the ages. Reminder here, 21 of Park’s proprietary Sigma struts are incorporated into the James Webb structure. The James Webb, along with our Sigma struts, are established at the Lagrange-2 orbit point, located about one million miles from Earth.

It’s pretty far away. I don’t know. I didn’t look it up, but I think light travels at 186,000 miles per second. Maybe you could look that up. I think that’s it. But if you do the math, that’s about five light seconds away. Your light year is about five light seconds away. In other words, it would take about five seconds for the electromagnetic signals and stuff like that, radio signals to come back from James Webb to the Earth. The James Webb recently spotted, this is just amazing stuff. I kind of get chills even thinking about it. It’s probably the oldest black hole ever seen. An ancient black hole with a mass of 1.6 million suns from 13 billion years ago. The James Webb spotted this black hole in the center of the infant galaxy G — I hope this is not supposed to be a cute thing.

These astronomers are sometimes clever. I hope that’s not supposed to be Gen Z. Maybe it is. It’s a galaxy, GN-z11. That’s only 440 million years after the birth of the universe. But here’s something in bold. It’s a big, big, big thing. Black holes of this magnitude are not supposed to have existed until much, much later in the development of the universe. So what’s that about? Is the universe really 13.7 billion years old? Or is it much older than that? 13.7, I’m no scientist. I don’t know anything about this stuff. But I think scientists measure the age of the universe by expansion and extrapolating back how many years it took to get started. But let’s go on to the next one. Slide 45. Are our theories about star and galaxy formation correct or fundamentally flawed?

Are modern cosmological theories about the universe and its origins correct or fundamentally flawed? And there’s nothing more important than this. our universe, how to get started. Data and images, sorry. facts are facts. From the James Webb, are currently modern cosmological science upside down and inside out. We thought we understood so much about the universe and its origins, but the James Webb is telling us we know so very little. Our theories are just not holding up. It is just beyond words and description what it means for us to be a very small part of the James Webb and its revelations for the ages. Let’s go on to the last slide. Just quickly, this is a little photo from our family holiday party celebration. The thing I want to tell you about is this is actually, this is not like a meeting hall or something.

This is our factory. it’s a factory floor. We didn’t have all these tables here. See that floor? This is the original factory. This is a 15-year-old. It’s not a new factory. We don’t clean the floor up for parties. It’s the most beautiful factory I’ve ever been in. It’s very special. So if you’re ever in town and you want to come take a look, just let us know. We’ll be happy to show you around. Okay, that covers our presentation, operator. So if there are any questions, we’d be happy to take them.

Operator: Thank you. [Operator instructions] Thank you. Our first question comes from the line of Nick Ripostella with NR Management. Please proceed with your question.

Nick Ripostella: Good evening, and Happy New Year, Brian, and to the whole team there. I know you can’t get into specifics of this potential new program, but might you be able just to say something about the math behind it in terms of the kind of rate of return profile that something like that would have? Can we just assume it would be similar to the existing profile? And, Yes, do the best you can. When you talk about the Company and you use the word conservative, I trust you. I can take that to the bank, so you could be conservative. The second question is, obviously, Park has a very bright future, and as you’ve said in the past, you paid your dues. So concerning how much cash do you think the Company really wants to keep on the balance sheet going forward? What’s your viewpoint on that?

Brian Shore: That’s a tough one. The first one, Yes, the margins are quite good on this new project, quite good, and maybe better than our existing margins. Certainly not worse, maybe better than our existing margins, so quite good. And, by the way, Happy New Year, Nick. Thank you for your questions. Hopefully that gives you a little perspective. There’s a lot of information. This is not just kind of like starting. We have lots of information, a lot of numbers that have been crunched, so we know a lot about this project. So when I say the margins look quite good, that’s not just kind of off the top of my head stuff. How much cash do we want to keep? Well, that’s why I mentioned we got the $9.3 million, but we still got to pay the IRS for that, the Patriots and stuff.

Well, I don’t know. I mean, good question. It’s something we think about. The board talks about it all the time. It’s really nice to have cash so that if we want to do this project, we say $6 to $10 million, but let’s say we spend more money on automation, let’s say it’s more than that. It’s nice to be able to say, yes, we’ll do it, rather than, okay, where do we get the money for it? The customer that approaches us, they know that, too. We’re a public Company, so they know that if we both agree to do it, that we’re not going to come back and say, oh, sorry, we don’t have the money. I don’t know. That’s a good question, Nick. I mean, I’m not really going to say, oh, we got way too much more cash than we’d like to have. When we had $150 million or so, I would have said that.

But at this point, Yes, I mean, it’s really nice to have the cash we have, but I wouldn’t say, oh, my God, we have so much excess cash. I don’t know if that helps, but that’s kind of an off-top of my head, off-the-cuff answer. It is something we talk about at the board level quite a bit, though.

Nick Ripostella: Can I just ask another question?

Brian Shore: Sure.

Nick Ripostella: I mean, obviously, with what’s going on there, you’re going to start generating cash hopefully in the next couple of years. But even after you pay the taxes and things like that, I mean, it’s just, obviously, it’s nice. We like that you run the Company very conservative like that, but with programs like this, I’m just trying to feel it out a little bit. But I understand where you’re coming from. Thank you.

Brian Shore: Yes, good point. It’s not a static number. You’re right. We expect to generate cash. So it’s something that really we have to evaluate on an ongoing basis, Nick, I think. It’s nice to have something so that when opportunities present themselves, we can go after them. We never thought of buying back stock as our biggest priority, but we’ll do that as well if the price is right and the opportunity presents itself. So it’s nice to have cash available for that as well. Companies, they go borrow money to buy back stock. It’s like, okay, that’s an interesting way of doing business, but it’s not our way of doing business. So we plan to be around a long time. We’re not playing for a couple years and playing games with our, what do you call financial engineering stuff. Does that help? Are there any other follow-up questions?

Nick Ripostella: Thank you so much. Best of luck for the rest of the year and next year.

Brian Shore: Thank you very much, Nick. Happy New Year to you and your family.

Nick Ripostella: Okay.

Operator: Thank you. There are no further questions at this time, and I would like to turn the floor back over to Mr. Brian Shore for closing comments.

Brian Shore: Thank you, operator, and thank you, everybody, for listening in. It was really nice to be able to share what’s going on at Park with you. Again, wish you and your family a Happy New Year. That comes from both Matt and me and Martina, Donna, all of us. And we’ll be around. If you have any questions, feel free to give us a call. Happy to talk to you. So you have a good day, and we’ll talk to you soon. Goodbye.

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