Good morning. My name is Katherine, 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 '21 Earnings Release Conference Call and Investor Presentation. All lines have been on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. At this time, I'd like to turn the call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, Katherine, and this is Brian. Welcome everyone. I have with me Matt Farabaugh, our CFO. Happy New Year to all. We announced our earnings this morning, as you may know. I encourage you to review the earnings release, which includes instructions on how to access the presentation. This will enhance our discussion. There's also supplemental financial data in Appendix 1 of the presentation that you might find valuable. Our goal in these presentations is not to promote or hype the Company, but rather to provide insights and perspectives that we believe will be beneficial for you, our shareholders, in understanding our company and its dynamics. Unfortunately, we can't cover every topic each quarter, so we have to be selective. However, we do have a comprehensive presentation that could take 45 to 50 minutes, so I want you to be prepared. Some topics will require more thorough discussion because they might not be immediately obvious. After the presentation, we will be happy to address any questions you may have. Let's begin with Slide 2, which shows our forward-looking disclaimer. If you have questions about it, feel free to ask us later. Moving to Slide 3, let's review the numbers. In the third quarter, sales were $10,372,000, with a gross profit of $2,553,000 and a gross margin of 24.6%, which is notably low compared to historical data. Our EBITDA was $1,380,000. The top line indicates the impact of the commercial aircraft downturn and the destocking we’ve mentioned repeatedly. For Q3, during our last call, we estimated sales at around $10 million and EBITDA around $1 million. When we say 'ish', we're expressing uncertainty and don’t want to give you undue confidence. Our actual performance appears to align with those estimates, if not slightly better. Remember our forecasting philosophy: we aim to be transparent with our projections to the best of our ability. Let's discuss factors affecting Q3 and Q4, including sales and margins. Sales from GE programs totaled only $1.8 million, which we will revisit later in the presentation. As we highlighted last quarter, we secured an agreement with MRAS, our largest customer, a subsidiary of ST Engineering in Singapore, which was previously part of GE Aviation. This agreement involves a minimum production quantity each month to maintain our ability to ramp up production, which has recently become necessary. The minimum is based on units rather than dollars, and we've generally required between $700,000 to $900,000 a month to maintain our critical mass. As I mentioned last quarter, we temporarily ceased operations on our hot-melt line for necessary maintenance in September. Consequently, in Q3, we only operated for two months, leading to the $1.8 million revenue from GE programs compared to $2.9 million in Q2 when we had three to four months of production. Additionally, during Q3, we sold about $2 million worth of a critical component for missile programs to OEMs, which are defense contractors. These components are sourced from overseas, and while there's a strong relationship with our supplier, the defense contractors are cautious and want to ensure a secure supply. We were tasked with purchasing this component and reselling it to the contractors, leading to low margins on this $2 million sale. Though our margins were lower due to this, when producing the prepreg and composite materials from these components, the margins are considerably better. Now let's transition to Slide 4, where we cover our top five customers. AAE Aerospace and Aerojet Rocketdyne are both connected to the Patriot missile system, which we've talked about before. GKN collaborates with Sikorsky among others, highlighted in our presentation with a Sea Hawk image. Next is Kratos, a significant player for us regarding drone materials. Lastly, we have middleware air structure systems, part of ST Engineering, and there's also an image of a 747-8 which I personally photographed. Moving to Slide 5, I want to share some pie charts for our fiscal year, illustrating the revenue breakdown. In 2020, we had $16 million in revenue, and our military segment now comprises 58% compared to 35% last year. Likewise, commercial dropped to 35% from 47%. If we calculate the military portion from last year's total revenue, approximately $21 million, this year the total of $31.8 million suggests a military revenue increase to about $24.6 million if annualized. Even in challenging times, our aerospace segment is doing well, particularly by focusing more on military programs, a strategy we've maintained over recent quarters. Shift to Slide 6, focusing on our niche military aerospace efforts. We’re concentrating on military, which so far is proving effective. The slide shows various programs of interest, including the Standard Missile-3 system, a fast missile system, and the Boeing KC-10 Extender, primarily used for refueling military aircraft. We're also involved with the Grumman E2-D Hawkeye for early warning systems and the Predator drone gaining traction in military applications. Let’s proceed to Slide 7 to talk about our commercial efforts. We’ll concentrate on commercial aircraft trends, showing a preference for single-aisle versus wide-body due to the direct flight model. The pandemic has accelerated this shift. If we're focusing on commercial aircraft, we believe single-aisle is where we need to be, especially given the significance of major programs like the Airbus A320 family and 737 MAX, which has been recertified. The Comac 919, still developing, signifies future potential. Slide 8 highlights the Airbus A321XLR, a notable single-aisle aircraft expected to be a game changer due to its range and seating capacity, likely impacting operations that typically rely on wide-body aircraft. This places us well within the commercial aircraft sector. Slide 9 reviews our participation in GE Aviation jet engine programs and explains the significance of our long-term agreement with MRAS, ensuring we build a redundant facility for enhanced capacity—critical for meeting demands. On Slide 10, we provide updates for various aircraft programs. For instance, the Airbus A320 family is anticipated to ramp up to 47 aircraft per month, indicating a positive outlook. We also received forecasts for the Global 7500 and Comac ARJ21, reflecting strengthened demand. Continuing to Slide 11, we note that by the end of 2021, Comac aims to finalize certification for the Comac 919 using our materials, while Boeing maintains the 747-8 production rates until production ends. On Slide 12, we discuss how we arrived at this tough situation following a considerable downturn in the commercial aircraft industry due to pandemic challenges. Despite the negativity prevalent at the time, we maintained our commitment to commercial aircraft and made strategic adjustments as necessary. As we look to Slide 13, we address the discrepancy between our required minimum production levels and the current market needs, focusing on the need for increased production as demand rises. Proceeding to Slide 14, we see the potential for a rapid increase in production due to rising forecasted unit requirements for all GE Aviation programs, excluding the stagnant 747 market. Slide 15 suggests we’re at a critical point as destocking seems to be concluding in most cases; it’s crucial to note the sales figures we’re expecting based on MRAS forecasts. Slide 16 points out some risks and factors potentially affecting our forecasts, recognizing global economic uncertainties, geopolitical risks, and the need for agility in our supply chain response. Next, Slide 18 highlights that the ramp-up relies heavily on our talented workforce. We plan to hire 15 to 20 individuals carefully without compromising our existing team's stability. On Slide 19, we summarize our financial expectations for Q4, expecting revenues between $3.9 to $4.4 million, emphasizing that while we see improvements, we remain cautious. Finally, Slide 24 reflects on the difficult global situation and affirms our commitment to pressing forward without wavering in our resolve. We’re thankful for our dedicated team who contribute to our shipping and receiving efforts. Thank you for your patience, and now we’ll open the floor for questions.

We have a question from Brad Hathaway with Far View. Your line is open.

Quick question on the M&A. I'd love just to get a little more color if you could about why you passed on some of the things you passed on in the last year? Why they just weren't right for Park just understand more of some of your thought process and how you evaluate opportunities to decide they're not a good fit.

I will discuss two cases, each with different reasons for our decisions. Initially, one opportunity seemed promising because it was niche, but as we researched further, we found the market to be very restricted with limited growth potential. While we were willing to invest, the lack of upside potential ultimately concerned us. In another case, we found it interesting but were worried about the high customer concentration and the owner's expectations, which seemed quite elevated. While owners have the right to set their valuations, this led to a significant disconnect, resulting in the end of discussions. These were not auction scenarios but rather one-on-one negotiations. We continue to explore a few other options, but these examples clarify why we chose not to proceed, despite the reasons being different in each case.

Understood. Great. And so you mentioned looking forward into calendar '21, there's a suggestion there will be more businesses on the block, but also valuation expectations will be higher. I mean, the combination of those two things make you more or less optimistic about binding potential deal in 2021?

Yes. It's an excellent question because I think it's yes and no. We're optimistic, obviously, because there's going to be more activity; that's a good thing. The conservative valuations and we talked about the herd mentality. Now if everybody is getting on that's kind of on a mindset that things are going to be going very well in the future, not just with aerospace; let's say, the economy generally. Then maybe there's some of that irrational exuberance that creeps into people thinking. We certainly felt we saw that in the past or valuation that didn't really make sense for us. So we'll have to see. We intend to be active. We have the cash. We intend to be active. But for Park, we always want to keep our head on straight and not get caught up in the mob mentality or herd mentality where everybody else is doing it. So we don't see the value, but everybody else seems to. So we need to get on board. We must be missing something. We're very reluctant to kind of buy into that thought process.

We have a question from Brian Glenn with Olcott Square Investment.

Hi Brian, thanks again for the very transparent walk-through as always and Happy New Year.

Happy New Year, Brian.

You mentioned making adjustments during your presentation. Could you take a minute or two to discuss how company culture serves as a competitive advantage? Specifically, I’m thinking of two points. First, the niche programs you focus on, which experience month-to-month or quarter-to-quarter volume fluctuations. Second, what you are currently doing and have done over the past few years to secure a position in some of these developing programs. I understand that in the aerospace industry, turnaround times for prototypes can typically range from six to eight weeks, though I realize that's a broad generalization. Perhaps this relates to your background in electronics, but it seems like your pace for completing projects and delivering to customers, whether for commercial products or developmental work, differs significantly.

So that's a big question about our culture. We could say a lot about it. We're a small company and not bureaucratic. There's a lot of passion, dedication, and commitment among our people, and we move quickly. We avoid politics and don't divide into cliques. The entire company works towards the same objective, which is to improve things for Park. This allows us to adapt swiftly; people can get focused and work in different directions rapidly. If we need to make adjustments, we do so without hesitation. Our culture allows for a good level of flexibility and agility. We can be relentless, although I’m uncertain if the six to eight-week time frame for aerospace qualification cycles is accurate, as they can vary greatly. Some are much longer, while others are shorter, depending on the specifics. When I mentioned the allocation 10, which is a small program, we are enthusiastic about it. While competitors may dismiss it as too small or troublesome, we eagerly take on those challenges. It’s fascinating how some larger competitors abandon programs; they might have been involved for a while but then decide not to support it any longer. Our approach is different; once we commit to a program or a customer, it's like being in a lifelong partnership. We don’t walk away from customers or programs. We encounter issues from time to time, such as sourcing components, but we don’t simply abandon programs or say we want to focus on larger opportunities. For us, every customer is treated as if they are our most important one.

And I'm showing no further questions on the call. I'd like to turn it back to Mr. Brian Shore for any closing remarks.

Thank you, operator, and thank you, everybody, for hanging in. I think we actually went over an hour. This probably breaks a record. So thanks for bearing with us. Happy New Year to all of you, and please give us a call anytime you like, always happy to talk to our investors. Thank you and have a good day. Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.