Good morning. My name is Paul, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Second Quarter Fiscal Year '23 Earnings Release Conference Call and Investor Presentation.

Thank you, operator. Welcome, everybody, to our second quarter conference call. This is Brian, and with me as always is our CFO, Matt Farabaugh. As you may have noticed, we're trying something a little different this time. For as long as I can remember, our investor calls have been at 11:00 AM New York time. This time, we're experimenting with having the call after market close, which I understand is actually more common. We’d appreciate your feedback on this approach, including whether more or fewer people were able to dial in. The earnings release was posted around 4 or 5 PM today, and there's a presentation available on our website. In the earnings release, you can also find instructions for how to follow along with the presentation today. Before we dive in, I want to mention that I've been a little under the weather recently. You might notice it in my voice, but I’m feeling fine now. The lingering cough could be distracting, so I apologize for any interruptions that may occur. This presentation will take about 45 minutes, after which Matt and I will be happy to answer your questions. Now, let's get started with Slide 2, where you’ll find the disclaimer language. We won't go through it in detail, but feel free to reach out if you have any questions. On Slide 3 is our table of contents, which includes the investor presentation and supplementary financial information that you can find in Appendix 1. We won't cover that right now, but reach out if you need clarification. Let’s move to Slide 4, where we’ll review the second quarter results. Sales for the second quarter are $13.875 million, and the gross margin is 29.4%. We're not pleased with the gross margin being below 30%. EBITDA stands at $2.709 million, and the adjusted EBITDA margin percentage is 19.5%, which we also prefer to be above 20%. So neither of these figures is satisfactory to us. During our Q1 call, we estimated sales for Q2 to be between $13.5 million and $14 million, and we came in right in the middle at $13.875 million. However, we had adjusted EBITDA estimates ranging from $3 million to $3.5 million, and we fell below that at $2.709 million. So, let’s discuss what contributed to that. On Slide 5, I want to commend our team for achieving the Q2 sales number while facing significant challenges like supply chain disruptions, freight issues, and severe staffing shortages. These are ongoing problems. I want to credit our team for meeting the top sales number despite these challenges, which together likely accounted for about $750,000 in missed shipments. But what happened to our EBITDA? Despite meeting the sales target, we still fell short on EBITDA. There were two customer-related issues that had a negative EBITDA impact of about $250,000. Moving to Slide 6, significant inflation has affected us, and while this isn't a new issue, some of the inflationary pressures were more than we anticipated. Costs for materials, freight, and labor have all increased, including insurance. If you want, I can provide a long list of items that have seen price hikes. We didn’t fully pass on these costs in Q2 because, as always, we honor our commitments to confirmed purchase orders. At Park, our principles of honor and integrity are non-negotiable. While others may not honor their POs, we do. When we provide quotes, we can factor in these added costs, but that won't happen for another few months. That's why we often find ourselves lagging behind in passing on cost increases. Continuing to Slide 7, we are facing the toughest inflation situation in history. As we’ve noted, trying to rein in inflation is proving challenging. This quarter, we also had a lower-margin product mix. You might wonder why we didn't foresee this when we gave our forecast. The unpredictability from supply chain chaos complicates our planning, which often feels like it never materializes due to constant juggling and unforeseen disruptions. Because of supply chain inefficiencies, we weren’t able to ship higher-margin products we had planned for the end of the quarter. Manufacturing personnel typically prefer structured plans, but recent events have made it chaotic. Although the lack of EBITDA achievement may seem harsh, at Park, we believe in earning our rewards. As such, there will be no quarterly bonuses for our team. On Slide 8, we show historical fiscal year results. We're highlighting the years 2020 and 2022, noting that while our sales were lower in 2022, our gross margin was significantly higher. Slide 9 shows our financial position: we have no long-term debt and $102.5 million in cash and marketable securities at the quarter's end. We focus on secure and liquid investments like treasuries and high-grade commercial paper with an average maturity of 22 months. Moving to Slide 10, major expansion plans have resulted in around $500,000 in expenditures in Q2 with about $0.5 million still anticipated. Regarding transition tax installment payments, there are complexities involved. To date, we've paid $8.4 million of the total $12.6 million due for repatriation matters. We also built up our inventory by $3.2 million to navigate difficult supply chain conditions, giving us the ability to meet customer commitments. We pay around $2 million in cash dividends every quarter, maintaining our payments throughout the pandemic with a record of 37 consecutive years of uninterrupted dividends. On Slide 11, I'm pleased to highlight $556 million as a significant sum for us. Since 2005, we've returned $27.15 per share to shareholders. We have authorization to repurchase up to 1.5 million shares, though we haven’t done any purchases yet. While you may disagree, we believe it's your responsibility to buy our stock, not ours. Our focus remains on maximizing the company's fundamental value. As we transition to Slide 12, we note that our top five clients remain unchanged from last quarter. Slide 13 provides an update on the first six months; performance seems consistent with last year, with minor changes not significantly altering the landscape. On Slide 14, we love niche military aerospace programs, spearheaded by Elena. These projects are significant and include notable advancements. Moving to Slide 15, we observe that the defense industry is experiencing a shift due to geopolitical factors. Countries are increasing defense budgets and taking more responsibility for their military needs, especially Poland, which is significantly expanding its military spending. Slide 16 highlights the importance of missile defense systems, particularly the PAC-3 Patriot missile, which has seen increased orders due to heightened defense initiatives in regions like Asia. On Slide 17, based on customer feedback, we anticipate deferring $6 million of planned Q4 sales for our ablative and C2B products to the next fiscal year. If this occurs, our sales for those products could be around $6 million this fiscal year. Slide 18 discusses the challenges in the defense supply chain. Transitioning to Slide 19, the commercial market faced a collapse at the pandemic's start but is recovering, primarily with domestic aviation led by single-aisle aircraft like the A320neo. On Slide 20, while demand appears strong, there are concerns surrounding the sustainability of this recovery amid labor shortages and rising ticket prices. Slide 21 highlights ongoing hurdles faced by commercial aviation, stemming from inflation and supply chain challenges. However, there's a surprising resurgence in international travel. Slide 22 introduces the 777X, which could replace older models due to its efficiency and capacity. Moving to Slide 23, we’ve updated our contract with Middle River Aerostructure Systems, positioning us as the sole source for materials used in engine nacelles and thrust reversers. Slide 24 covers GE Aviation’s engine programs, where Airbus aspires to ramp up production of A320neo aircraft, although supply chain skepticism remains. On Slide 26, we believe Airbus will closely approach its production targets due to strong motivations. As noted on Slide 27, the CFM LEAP-1A continues to hold a substantial share of orders for the A320neo family, which we confirmed through reliable data. Slide 28 discusses how Park’s revenue from the A320neo program is influenced by various factors beyond just Airbus’s performance. Slide 29 summarizes expectations for the XLR, which is anticipated to be a game changer due to its fuel efficiency. Transitioning to Slide 30, we noted Bombardier's announcement of a Global 8000 variant. Slide 31 marks the end of the 747-8 production, highlighting a significant moment in aviation history. On Slide 32, we see steady sales in the $6 million to $7 million range for our GE Aviation program, with Q3 estimated at $4 million to $4.43 million. As we look to Slide 33, we recognize the operational forecasts are being influenced by the pace of production increases, necessitating adjustments in our operations. On Slide 34, our Q3 sales forecast is between $13.25 million and $13.75 million, with adjusted EBITDA expectations remaining between $3 million and $3.5 million. Although we contemplated providing a Q4 forecast, uncertainties complicate this, making it tough to deliver meaningful estimates. Slide 35 reiterates the challenging environment we face but maintains a favorable outlook for Park. On Slide 38, despite economic concerns, the outlook for Park appears quite positive. Our recent expansion in Newton, Kansas, showcased on Slide 39, stands out amidst widespread capital budget cuts. Slide 40 features the James Webb Space Telescope, which incorporates our SigmaStruts and is currently orbiting in space, something we are very proud of. Updates on the ADL program are in Slide 41, where we are currently the sole source for the 737 legacy aircraft, although we’re respecting a low profile due to the client's request for discretion. In Slide 42, we discuss a potential project for Automated Fiber Placement manufacturing, pending a capital investment decision. Slide 43 elaborates on the benefits of AFP manufacturing, which could lead to enhanced cost efficiency and quality. Slide 44 warns of the potential challenges associated with AFP, particularly the investment costs and learning curves involved. As we shift gears in Slide 46, we highlight our Customer Flex program, essential for overcoming current workforce challenges due to our headcount being below ideal levels. On Slide 48, we address the impact of inflation on our team and our efforts to support them with a pay premium for lower-income employees. Finally, Slide 51 encapsulates our achievements throughout the pandemic, emphasizing our profitability and commitment to ethical practices. As we conclude with Slide 52, we affirm that we earn our success without relying on government assistance or favors. I want to take a moment to appreciate our talented team members for their outstanding contributions. Thank you for your attention. Matt and I are now open to questions.

Our first question is from Brandon Deips with Huffman Prairie Holdings.

I just wanted to follow up real quick on the GE Aviation Q3 guidance. Pretty decent size reduction from Q2 to Q3. And I may have missed some of your commentary. But can you provide maybe just a little more detail? I mean, is this just the calendar shift into Q4? Do you expect to recoup kind of those missed sales in the following quarters? Just hoping to get a little more detail around that reduction.

So if you missed it, I did a lot of commentary on this point. You probably want to go back and listen to it. I don’t want to go over it again, and I don’t want to summarize it unfairly because there are a lot of factors here. It’s somewhat delicate but I tried to be candid in respect for our long-term shareholders. My suggestion is to go back and listen to that portion of the call if you haven’t, and then give us a call with any follow-up questions you may have.

Okay. Yes. Yes. That’s definitely okay. We can follow up with you on that. I did have a question regarding the 2025 $32.5 million figure. I'm pretty impressed by the increases you guys have noted over the last few quarters, if I go back and kind of back into the shipset value that implies, it's pretty decent, I think, an 8% to 13% increase over the last few quarters. Is that just pricing? Or can you provide any commentary on what's driving the increase in the shipset that you guys are seeing?

Yes, that's just for the A320 also. So a few things are happening here. One is we have new usage numbers. Remember, the prior usage assumption was in question. We ship something, but we often don’t know which program it’s going to. The usage information is critical for us. The usage data increased, resulting in more material needed per shipset for the A320. Secondly, there’s a built-in increase based on our LTA for '25. And the third factor is, as I mentioned, we think film adhesive will also be on the A320 program by that time. Those are the three factors affecting the A320 unit numbers.

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

Thank you very much, operator. And thank you all for listening. I apologize for going so long. This is the longest we’ve ever done, I’m pretty sure. Also, I apologize for the coughing, which I know must have been distracting. Thank you for bearing with me. If you have any follow-up questions, feel free to reach out to Matt and me anytime. Have a good autumn and we’ll speak again soon. Take care.

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