Good morning. My name is Paul, and I'll be your conference operator today. I would like to welcome everyone to the Park Aerospace Corp. First Quarter Fiscal Year ‘23 Earnings Release Conference Call and Investor Presentation. Thank you. I will now turn the call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, Paul. This is Brian. Welcome everybody to our first quarter conference call. With me, as always, is Matt Farabaugh, our CFO. So, this morning, we put out our earnings release, our first quarter earnings release. In the earnings release, there are instructions on how to access the webcast, get access to the presentation that we're about to go through; also, the presentation is on our website. The presentation, as you've probably already noticed, is quite long but don't be alarmed. This is a dilemma we had; it's been less than two months since our Q4 conference call. Not very much time has passed, and a lot of the material in the Q4 presentation was new information that is still very relevant. So, we didn't want to eliminate that completely. What we decided to do is carry over much of what was in the Q4 presentation to the Q1 presentation, but with some updates and additions, new items in other words. During this call, we'll focus on the updates and new items, skipping over a lot of the rest of it. The Q4 call is still on our website if you want to go back and listen to that, feel free, of course. If there are things we skip over that you want to ask questions about, please ask. It's not that we don't want to cover these things but we're trying to be practical here. Because we're going to be jumping around a little bit, we hope to make it as cohesive as possible; if it's a little bit uncohesive, I apologize for that in advance. We try not to spend a lot of time in these presentations with what we consider to be dry financial analysis. If you want to do financial analysis, just let us know; we're happy to respond to your questions. I also want to give a little shout out to Donna D’Amico-Annitto, she’s like my partner in these presentations. I don't know how to do PowerPoint; I'm an old guy. So, she does well with PowerPoint. We ended up working over the 4th of July, over Christmas, and I think she spoke during vacation but she worked pretty much over the 4th July holiday. So, thank you, Donna. Matt and I, of course, will answer your questions at the end of going through the presentation. Even though we're trying to skip over some things and make it as concise as possible, it's still going to take probably 45 minutes, I would think. So, I just want to warn you about that. Let's just jump in. Let's go to slide 2, forward-looking disclaimer. Let us know if you have any questions. Slide 3 is our little table of contents, beginning with the investor presentation. There's Appendix 1 Supplemental Financial Information, which we attach to all of our presentations these days. Just let us know if you have any questions about any of that. We need to take a moment for slide four, which covers our quarterly results. In the right-hand column highlighted in yellow, you can see our Q1 figures. Our sales and gross profit margin stood at 32%. While we aim for better, we are satisfied whenever it reaches around 30%. You can also see our adjusted EBITDA and EBITDA margin. We want to remind you about our forecasting approach during each call. When we share our expectations, it reflects what we believe will happen, but we acknowledge we could be mistaken. We do not understate our forecasts just to exceed them later and appear impressive; that's not our approach. Last quarter, we estimated sales between $12.75 million to $13.25 million and landed at approximately $12.783 million, the lower end of our projection. Our adjusted EBITDA estimate was between $2.75 million and $3.25 million, and we ended up at $2.8 million, again on the lower side. Despite this, our team did an outstanding job achieving the Q1 sales and EBITDA figures. You might question why we’re emphasizing the low end. It's challenging to recognize the daily struggles and tremendous effort required. When we provided the forecast last quarter, it was notable because we were just two and a half weeks from the end of Q1. We were in the middle of our audit during Q4 and later disclosed the results. Even acknowledging that, significant risks surrounded our predictions. All the sales were booked, but we were uncertain about what we’d receive amidst the supply chain chaos. Much of what we produced and shipped in Q1 happened in the last two weeks. It has been a constant battle with the supply chain. We received some raw materials and had to produce, test, certify, and ship the products to close the quarter successfully. Our team dedicated long hours, particularly in those final weeks, to complete the task. I can confirm that our financial periods conclude on Sundays, and our team worked that weekend, fulfilling shipments over the last weekend of the quarter. So yes, a significant portion of the Q1 sales and production occurred in the last two weeks. We talked about the weekend. Park’s team pushed hard to finish the quarter strongly. We'll revisit this to discuss the implications for our team. I want to emphasize that they did an outstanding job, even though we just reached the lower end of our range for both the top and bottom lines. Moving on to slide 5, this is largely a reiteration of our Q4 results. Freight continues to be a major concern. Recent year-end reports suggest there might be some improvement in international freight shipping overall, but the positive aspect is tempered by the fact that it's due to demand destruction. You can judge for yourself if that qualifies as good news. At least there might be some easing in access to international freight, which has been a persistent issue for us each quarter. Staffing shortages are still significant and are not expected to resolve quickly. We're addressing this appropriately, focusing on building a strong culture and not cutting corners, such as simply increasing wages. Total missed shipments were $1.25 million, and we had previously estimated Q4 missed shipments to be around $1 million to $1.25 million due to various factors primarily linked to freight and supply chain issues. This highlights the daily challenges we face. We don't think we're being overly dramatic when we describe our situation as a daily struggle. Moving on to slide 6, inflation remains a concern. The second point indicates that historically high levels may persist for some time. Breaking the trend may prove challenging; we may have made significant mistakes. This isn't about making excuses; we don't believe in that at Park. It's important for you to understand the challenges we deal with daily, as you are our investors. The supply chain has become chaotic and is not improving to our knowledge. In many cases, even confirmed purchase orders are not being honored. We discussed this extensively last time, so I won’t elaborate further, but I wanted to emphasize that this continues. At Park, honor and integrity are paramount. Principles do not come easily. During our last quarter, the information presented is consistent with the last quarter’s presentation. We highlight fiscal ‘20 and fiscal ‘22; the key takeaway is that the top line for fiscal ‘22 is significantly lower than that of fiscal ‘20. However, the gross profit margin was higher. The EBITDA was slightly higher in fiscal ‘22 compared to fiscal ‘20, even with a much lower top line, and I view that as an outstanding achievement by Park’s team given the circumstances. Let’s keep moving here. Most of this content is a reiteration from last quarter, but I want to highlight some new items. Park currently has no long-term debt. Our reported cash is $107.3 million, which has decreased significantly. So, what’s happening there? Are we spending money? Let’s talk about that. Park's investment strategy involves investing our cash in highly secure and liquid securities, such as treasuries, government securities, and high-grade commercial paper. The average maturity is 23 months, which I don't think is excessive. However, with rising interest rates, there is an impact. The issue is not the credit risk of the investments, but rather the interest rate risk. Our practice has been to hold our investments until maturity instead of trading. While trading could be an option in the future, our current practice is to maintain investments until they mature. Therefore, we report cash based on the market value of the investments rather than their cost. All these securities are highly liquid and quoted like treasuries every second of every day. It’s easy to get that market value, but the market value has gone down, even though they’re fairly short-term securities. The amortized cost basis of our cash at the end of the quarter was $111.3 million. We report the required number based on GAAP requirements, but once you have this information, you decide which number you think is more significant. If we hold these securities to maturity, we’ll likely get closer to that $111.3 million number than the lower number. Why is it not the exact right number? Because the way the amortized cost basis works is that we take the investment at cost and amortize either the discount or premium over the life of the security until maturity. If you want more information about that, talk to Matt. A lot of you guys are financial professionals; you probably understand this even better than I do. But I just wanted to clarify that number and warn you that when we get to Q2, this discrepancy is likely to be greater, because interest rates are trending up. Let’s go to slide 10; we don’t need to go over the top part of it. We reviewed this previously, no change there. Cash dividend – I want to remind you that since fiscal 2005, we paid a total of $554 million or $27.05 per share in cash dividends. Slide 11 shows something new at the top: share purchase authorization. On May 23, the Board authorized our purchase of up to 1.5 million shares of company stock. We've been in the blackout since the authorization, but that blackout ends tomorrow. So, what happens now? It’s interesting because even before we made this announcement, we received a lot of input from investors and shareholders, some significant ones, about capital allocation questions. Opinions varied; some were against a buyback altogether, some felt we should announce a buyback but only as a safety measure, and others encouraged us to announce and buy back shares at current levels. I want to address one comment made by an analyst, suggesting we announced the buyback as a matter of appeasement. What does appeasement mean? It implies we didn’t believe it was the right thing to do, but did it under pressure. That’s not Park; we do what we think is best for the company. While we appreciate input from shareholders, we’ll do what we feel is right. We want to be clear we don’t do things for appeasement. We see a lot of that in corporate America these days, and it’s very disappointing to see CEOs lacking backbone. I’m not here to keep my job; I’ll do what’s best for the company. We’re thinking about two key factors: the strategic value of our money and the troubling situation in the economy. People think it’ll get better, but my question is why? We don’t want to delve into our opinion on that right now, but I want you to know it’s something we’re considering. Let’s move to slide 12. We won’t spend much time here, just an update. Our top 5 customers remain the same as last quarter. Some items don’t change much. Every quarter, we provide updates on different programs our top 5 customers are engaged in. Bombardier Global actually related to the Passport 20 engine for the Global 7500. The XLR that relates to MRAS is Sikorsky’s contract with GKN. I believe Sikorsky was recently awarded a $2.3 billion contract for Black Hawks. The PAC-3 Missile relates to AAE, Aerojet, and Kratos. I suspect there might be a T-38 demonstration of some sort. Moving on to slide 13, the Q1 numbers look similar to last fiscal year's breakdown. The military mix may start to increase based on points we’ll address later. Slide 14 showcases some military programs. They’re not always the largest but interesting for us to share. We’re updating you about recent events that relate to these programs. Slide 15, I won’t go into all the details, but we discussed the new world order last quarter. On slide 16, we have updates from Europe but nothing major in this presentation. Slide 17 reminds us to keep an eye on Asia. The bullet point on South Korea pertains to their recent announcement to purchase additional PAC-3 defense systems. Given the state of the world, this wasn't surprising. Lockheed’s CEO indicated demand signals for THAAD and PAC-3 around the globe. Slide 18 provides updates on the PAC-3 system. We’re receiving signals about increased demand for ablative materials and the RAYCARB product. This is being sold under our partner agreement with ArianeGroup. We’re forecasting sales of over $13 million for ablative materials and RAYCARB products this year; the normal range has typically been $5 million to $6 million in the last several years, so this is quite a jump. Let’s not forget that supply chain issues still loom large. Moving on to commercial trends, we covered most of this previously, but IATA predicts global air traffic will return to pre-pandemic levels in 2023; I believe this is relatively new in terms of updates. We’ve also done pages on increased jet fuel costs and how airlines are passing those increases to customers, who are just thrilled about how well things are going, but there are limits to this as you’ll see in slide 20. On slide 20, we question whether this situation can continue indefinitely. With rising gas and food prices, coupled with recession fears, families are starting to reconsider vacations, including trips to Cancun. The question becomes: if airlines slow down, what will the OEMs, like Boeing and Airbus, do? Slide 23 addresses how higher jet fuel prices encourage airlines to switch from older to newer, more fuel-efficient planes earlier than planned. And don't forget the looming supply chain issues impacting all aspects of the industry. Slide 24 includes key GE Aviation programs, a staple of our presentations. I don’t believe we need to dwell on this slide unless anyone has questions. On slide 25, we have updates on GE programs like Film Adhesive and Lightning Strike, which are positives for Park. Economy and aerospace predictions continue to evolve but we should be mindful of Boeing announcing its delay on 777X entry into service until 2025, which is disappointing. On slide 28, this addresses the A320neo family of aircraft. Airbus is outlining their ramp-up plans through 2023 and beyond, committing to increasing single-aisle production rates. However, recent reports highlight significant supply chain issues that Airbus is encountering, which pose challenges. CEO Faury expressed frustration regarding the supply chain lagging behind A320neo production. They had advised the industry to prepare, but many did not heed that warning, resulting in them producing 'gliders,' which are complete airframes without engines awaiting installation. This reflects Airbus's determination to continue advancing despite the challenges faced. Slide 32 reiterates our commitment to supporting Airbus's ramp-up efforts, which we are pleased to announce. Slide 33 addresses a common concern regarding our A320-related revenues and their alignment with aircraft deliveries, where various timing discrepancies make reconciliation difficult. The key takeaway for us is that the most important factor is the number of A320neo aircraft equipped with CFM LEAP-1A engines that are delivered. That is our primary focus as we consider the long-term outlook. Slide 34 discusses the Comac 919, the first production aircraft that has taken flight. Bombardier Global 7500 announced a new derivative, the Global 8000, with a range of 8,000 nautical miles and expected entry into service in 2025, with Park being involved in that program. On slide 35, we revisit the discontinuation of the Boeing 747 program, which only has three left to deliver. The GE Aviation program forecast in Q1 came in at $6.4 million, consistent with our estimate of between $6 million and $6.5 million. For Q2, we forecast sales of $13.5 million to $14 million with an adjusted EBITDA of $3 million to $3.5 million, but once again, we highlight the significant supply chain risks. In slide 38, we covered important points from Q4 concerning forecasting challenges in the current chaotic environment. We believe we can provide meaningful insights about our outlook, segmenting into military and commercial aircraft. On slide 39, we assert our belief that Airbus is attempting to establish a dominant position in single-aisle production, which would signal a significant shift in market share dynamics. Slide 41 links our market position to the potential impact of an economic recession; despite concerns surrounding the economy, we maintain a positive stance on Park's outlook for the reasons mentioned previously. We give an update on our expansion, which we won't dive into now. On slide 43, we’re proud of our contribution to the James Webb Space Telescope, as we provided 21 SigmaStruts for the project. These components are now a million miles away from Earth at their operational site. The release of first images from the telescope is highly anticipated. Slide 44 discusses our initiatives with a new potential joint venture partner; these discussions remain on track. We’ve recently mentioned the new program with Aero Design Labs focused on the 737 legacy aircraft to improve fuel efficiency. The economics have become compelling due to rising fuel prices, which could lead to significant investments from Park. On slide 47, we were honored to receive the Distinguished Supplier Award from Aerojet Rocketdyne, given to less than 1% of their suppliers. We are grateful for the recognition. Our team remains critical to their PAC-3 missile program. Moving forward to slide 48, while we covered most of these points last quarter, our headcount is at 106, below our desired level. Although we do things differently at Park and refrain from laying off employees during the pandemic, our dedicated workforce has been working tirelessly through challenging times, with some individuals clocking 70-hour weeks. We recognize the loyalty and commitment of our team. We believe that our culture drives our success; our techniques empower our people who can deliver on our sales targets effectively. Slide 52 reviews the principles of our business model, emphasizing that it’s costly and inconvenient for us to honor POs in a world where many others do not. But we believe in keeping our commitments and not compromising our values. Recently, we were advised by a supplier that we should not honor our POs either. Our response is that when you sell your soul, you have nothing left; it's merely a matter of time before your days are numbered. Slide 53 highlights our commitment to not accepting government assistance during economic downturns, unlike many corporations. We made money and paid taxes throughout the pandemic while ensuring our entire team remained employed. Our people are our most valuable asset. Lastly, slide 54 reiterates that our decisions reflect what matters most at Park: honor; integrity; and an unwavering commitment to doing what’s right for the company and its people. We are not like others; we aim for excellence and a significant impact. I want to thank you all for your patience during this comprehensive presentation. If there are further questions, we’re here to address them.

Our first question is from Nick with NR Management.

Good morning, Brian. I wonder if you could comment on kind of new niche markets for Park potential. I'm thinking of SpaceX, electric aviation. Are there any products that Park could make for those markets? And do you think your sales process would be different for those endeavors?

Thanks, Nick. Thanks for the question. We haven't done a lot in terms of sales so far in these two markets, like electric aircraft and private space. We do have a product that we are targeting toward these tall type aircraft, I guess you call them. We have been working toward these private space companies; I mentioned a little in a pie analysis, there’s some from private space. But I would say not the success we would have liked to achieve so far. However, those two markets that you mentioned are still areas we’re interested in targeting. I think we have products that might be appropriate for those markets. Is that helpful, or do you want more information?

Yes. No, thank you. Thank you so much.

Thank you. Our next question is from Brian Glenn with Olcott Square Investment Partners.

Just two questions. I guess, the first, this goes back to, I think, it’s slide 17. You mentioned fiscal year 2023 sales for the ablative and RAYCARB; you guys are expecting $10 million. Is there any indication that you can provide with respect to what that figure would have looked like for fiscal year 2022 just so we can understand the trajectory a bit?

Yes, $5 million to $5.5 million, something like that. And I think we should have said over $13 million; we’re trying to be too conservative. This is a forecast; it’s not all booked. The number we’re looking for this year is indeed over $13 million. But last year was, I think, in the 5ish range.

Understood. Okay. That’s helpful. And then the second question, and I know you mentioned you've spoken with shareholders regarding capital allocation, specifically share repurchases. The only other thing I want to bring up is if there's a view that you have a multi-year period of earnings growth. I know nothing is guaranteed, but if that's the view, and obviously there's some calculus as to whether the stock is cheap relative to that growth or not. But I did want to bring up, you save a few bucks on the dividend for the shares you repurchased. And the other thing is you potentially cash out short-term shareholders. So, anyone who has ownership in the company, I know you appreciate ownership, but anyone who has a short time horizon is more likely to be a seller. So, you effectively cleanse the capital structure a bit with respect to the ownership piece. There’s a selection bias that exists whenever a company engages in share repurchases. Again, they have to be thoughtful and calculated, but you do end up kind of calling your investor base and a better crop of fellow shareholders and partners that have an appreciation that the business is worth more; that's why they didn't sell and also a better time horizon that is more long term. So, there's that selection bias, which I think should be considered by the Board and might be appealing.

I agree, and I appreciate the input. You’ve given this input before; it’s appreciated. We’ve received about 6 to 8 responses from different investors regarding capital allocation. It’s interesting to see varying opinions, with some before the announcement. We appreciate the input, and we take all valid advice into consideration. Your input is indeed valid. I can't set a specific direction right now; I think at this point we want to evaluate a bit. We are concerned about the direction of the economy and the country, among other factors that you mentioned. We receive unsolicited analysis from shareholders, which is appreciated. I’ll reiterate, we appreciate input and will take all considerations; decisions involve weighing numerous factors, as often happens in the corporate world where all indications do not align.

Yes, I appreciate that and understand completely. I have one more question. It seems to me, as a passive shareholder, that aside from any major acquisitions, which you clearly know more about than I do, the growth opportunities Park has looked into or partnerships related to facility expansion appear to require minimal capital investment. I realize you may not be able to comment on potential developments, but from what I've seen over the past two years, the capital needs seem quite low. Please correct me if I’m mistaken.

I would say that’s partially correct. If we look at these two projected capital projects, you’re correct; they each present around $7 million to $8 million of required investment. Nonetheless, we’re having ongoing discussions with others involving projects that would incur much larger capital needs, not discussing M&A here, as you pointed out. Joint ventures, for instance, are discussions that involve much more capital, and we've been proactive in that regard, having engaged with multiple OEMs and even initiatives for broader collaborative opportunities. Some conversations could require significant capital.

There are no further questions at this time. I would like to turn the floor back over to Brian Shore for any closing comments.

Okay. Thank you, Paul, and thank you, everybody, for listening. I appreciate the questions and your time. Matt and I are always available; feel free to call us any time you want. Have a great summer, and we’ll talk to you soon. Take care.

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