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 be a question-and-answer session. Thank you. At this time, I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, operator. This is Brian. Welcome, everybody. I want to introduce Matt, our CFO, Matt Farabaugh. We’d also like to take this opportunity to wish you and your families a very happy new year. All the best to you in 2024. We just announced our Q3 earnings about 45 minutes ago, so let's get into that. In the earnings announcement, you'll also find instructions on how to access the presentation we’re about to go through, which is fairly lengthy. I had hoped to keep it short, but it's ended up being longer as there are important details to cover. We don't use catchy sound bites or hire investor relations firms for clever presentations because we believe you should hear directly from management. It may take around 45 minutes to go through the presentation, during which we might skim over some items that have been discussed previously. There are several aspects in this presentation that were also in the Q2 presentation, which may help us move along. Before we begin, I want to give a shout-out to Donna, as Q3 is a challenging time for us due to holiday schedules. She's instrumental in preparing our PowerPoint presentations, as I am not proficient in PowerPoint at all. Every third quarter, she works through the holidays to support me in this. This year marks our 70th anniversary in business on March 31, just a couple of months away. Moving on, Slide two contains our forward-looking disclaimer language, which we won't go into detail about now. Please feel free to reach out with any questions. Slide 3 outlines the table of contents. First up is the investor presentation, followed by the supplementary financial information in Appendix one, which we won't discuss in detail, but do let us know if you have any questions about it. Now let’s proceed to Slide 4 and discuss Q3. Sales for Q3 reached $11 million. Compared to Q2's $11.639 million, this figure seems low, particularly since Q2 was already down. You likely understand the context from our previous discussion. Regarding the margins, both gross margins and EBITDA margins are highlighted, and are not favorable when we see gross margins below 30%, which they are this quarter, along with EBITDA margins that are not ideal. What happened in Q3? We continued with the MRAS inventory burn-down that we discussed in our Q2 call, which we anticipated would continue. Will it carry into Q4? No, it's concluded, and we’ll cover that further in the presentation. Let's move to Slide 5 to discuss non-GE aviation sales. For Q3, these sales stood at $7.5 million, down from $9.4 million in both Q1 and Q2. Although there is often quarter-to-quarter variability, the trend for non-GE aviation sales is encouraging. The variability stems from numerous factors, especially since some programs may be active in one quarter and inactive in another, which is beyond our control. Our focus at Park is on pursuing new programs that align with our long-term goals rather than managing existing ones. Slide 6 highlights that this variability can make our visibility less than optimal, necessitating agility in our supply chain, inventory, and production management. Were there new challenges to completing sales in Q3? Yes, and we’ll elaborate on those shortly, but first let’s focus on margins. Why were the margins in Q3 lower than in Q2? There were a few factors, including a less favorable sales mix in comparison. The sales mix in Q2 was good, while Q3 was not as strong. As noted earlier, we have limited control over which programs are active each quarter, which introduces some unpredictability. The second factor was lower sales overall. We anticipated light sales for Q3 compared to Q2 and decided to intentionally increase costs in Q3 to prepare for expected program ramp-ups. Let’s move to Slide 7. We anticipated this upcoming wave, which we likened to a freight train. Incrementally ramping costs can seem daunting, especially when sales projections appear bleak; however, looking back, it’s clear that our approach was a beneficial decision. Now, regarding supply chain challenges, we frequently discuss improvements, and while staffing issues persist, we believe they are improving. Just to clarify, we're referring to our supply chain issues and not the entire industry. International freight remains challenging due to situations like the Middle East war that arose after Q2, causing disruption in shipments to our customers there and in Asia. Our total shipments in Q3 were about 560,000, a significant improvement from around 220,000 in Q2, although some of that is attributed to international freight disruptions. Inflation has affected our margins, and while it's claimed to be waning, we remain skeptical, especially regarding operating costs tied to our new plant in Kansas. Slide 9 shows historical fiscal year results for perspective, indicating growth up until the pandemic, which severely impacted sales in recent years. For fiscal year '24, we foresee similar sales figures as in '23, estimating around $55 million and $11.5 million EBITDA. Despite the challenges post-pandemic, we hope to regain momentum this fiscal year. Moving to slide 10, we’ll cover our balance sheet and dividend history, which shows zero long-term debt and $74 million in cash, with $9.3 million in transition tax installment payments outstanding through June 25. We have paid substantial dividends over the years, totaling $588 million since 2005, which is considerable for a company of our size. Slide 11 reminds us that the board approved a buyback of 1.5 million shares, with around 1.3 million still available for purchase. Slide 12 features our top five programs, giving particular attention to our contracts with various aerospace manufacturers. We’ll skip ahead to slide 13 to view our pie charts, which indicate a dip in commercial sales compared to previous years mainly due to the burn-down. On slide 14, we focus on military aerospace programs, highlighting various niche markets, including rocket nozzles and drones. Let's move to slide 15, where we see that domestic air travel has fully recovered and international travel is nearing pre-pandemic levels, benefitting long-haul aircraft like the Boeing 777X, among others. Slide 16 emphasizes the recent ramp-up in A320neo aircraft deliveries, which serves as a critical proxy for the commercial aircraft sector. Military markets are similarly experiencing high demand amid global tensions. To slide 18, we underscore the importance of GE aviation programs, reiterating our long-term agreements and who we partner with on these projects. Moving on to slide 19, we discuss our proprietary film adhesive formulations, which have been integrated into our agreements, demonstrating our ongoing development within this industry. Sliding to 20, we’ll recap key programs, starting with the A320 NEO that boasts a massive backlog. Slide 21 reveals Airbus's performance, with impressive delivery numbers even throughout the pandemic period. On slide 22, we note that for the first time since the pandemic, Airbus has returned to pre-pandemic production rates for their aircraft. On slide 23, we discuss the LEAP-01A engine’s market share, which has grown significantly and strengthens our position in that space. Lastly, we will touch on some new developments on slide 44 concerning the James Webb Space Telescope and its profound discoveries, marking our involvement in significant scientific advancement. Finally, slide 45 recalls our holiday celebration at the factory. If you're ever in town, we're happy to give you a tour. That concludes my presentation, and I’d like to open the floor for any questions.

Thank you. Our first question comes from the line of Nick Ripostella with NR Management. Please proceed with your question.

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?

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’ve 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.

Can I just ask another question?

Sure.

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 conservatively 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.

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 of years and playing games with our, what do you call financial engineering stuff. Does that help? Are there any other follow-up questions?

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

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

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.

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.

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