Park Aerospace Corp. (PKE) Q1 2022 Earnings Call Transcript

Park Aerospace Corp. (NYSE: PKE) Q1 2022 earnings call dated Jul. 08, 2021

Corporate Participants:

Brian Shore — Chairman and Chief Executive Officer

Matt Farabaugh — Senior Vice President and Chief Financial Officer

Analysts:

Brad Hathaway — Far View Capital — Analyst

Christopher Hillary — Roubaix — Analyst

Presentation:

Operator

Good morning. My name is Michelle and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. First Quarter Fiscal Year ’22 Earnings Release Conference Call and Investor Presentation. [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 — Chairman and Chief Executive Officer

Thank you, operator. This is Brian. Welcome everybody. Welcome all to our Q1 investor conference call. I have with me, of course as usual, Matt Farabaugh, our CFO. So, at Park, we announced our earnings early this morning, you want to go check that earnings release, so because in that earnings release, there are instructions as to how to access the presentation that we’re going to go through now in order to make this call more meaningful, you really want to have that presentation in front of you. The presentation is also available on our website if you want to do that way. So what’s interesting about this call is that it was actually less than two months ago that we announced before [Phonetic].

So there’s not a lot of new stuff, there are some new things, we’ll give you some updates. And we’re trying to make it interesting by not having everything the same. Some of the slides are actually most identical to the Q4 slides, but we felt we kind of had to include them for perspective. Some of you may be totally on top. And remember, every line of our Q4 presentation, but I suspect most of us aren’t on top of it. So, some of the slides you would at least quickly go through just for the perspective. And like I said, maybe skim through those [Indecipherable] there for perspective. The presentation could take about 45 minutes for Matt and I to go through. So I just want to warn you, partly because we’re including a number of slides from Q4 just for that perspective and context. Then of course, after Matt and I go through the presentation, we’ll answer questions for you.

Okay. So why don’t we get moving? Slide 2 is our forward-looking disclaimer. If you have any questions about it, just let us know. Slide 3, it’s a familiar table of contents. So, the first thing, Slide 1 is a presentation. Appendix 1 is supplemental financial information, which is something we’ve included in our presentations for several quarters now. Appendix 2 and Appendix 3 are new environmental and community considerations, diversity and our workforce. These statements — Park statements were actually posted on our website, I think, maybe early June, we put them up there. But because with respect to a lot of people aren’t aware of every listing when it goes on our website, probably don’t check it every day. We just wanted to attach these two statements as appendices to this presentation, just so we bring it to your attention. So you’re aware that we don’t — you’re aware of them, we don’t intend to go over them during this call, but we wanted to put it out there so you can see them and like, anything else, you’ve got any questions or comments, please let us know.

Okay, let’s go to Slide 4. This is going to take a little bit more time to go through. So, when we start with Q1, the numbers, sales are $13,594,000. And let’s just compare that to Q4 for a second. This is an important perspective. Q4 was $14,441,000, but remember we covered this. Q4 included $3.5 million of that essential component. We keep talking about that for missile programs. So basically that’s a pastor where we had a relationship with a supplier overseas. We buy this product and we sell it to some of the customers and we charter mark-up but there’s no production involved and very low margins involved.

So, really if you want to get apples to apples, you might want to subtract about $3.5 million from the $14.4 million, so that’s approximately $11 million compared to the — for Q4 compared to $13.594 million. [Indecipherable] you want to look at up and just [Indecipherable] perspective, our gross profit $5 million for Q1, $5,472,000 and gross profit — gross margin 40.3%, which to us is something, I don’t remember seeing that maybe ever over 40% gross margin. That’s quite good. We normally don’t like it when our margins — gross margins go below 30%, so about four years [Phonetic] is quite good.

The adjusted EBITDA of $4.1 million, I don’t — $4,104,000, I don’t remember how long ago was that we had EBITDA above $4 million in the quarter. It’s been a while any way. If you look at the historic [Indecipherable] getting close to it. And 30% — 30.2% adjusted EBITDA margin also quite good. Look at the history, you’re not going to see things like that. So, let’s see. What do we say about Q1 during our May 13, 2021 Q4 investor call. When we say about it, we said our sales estimate was $13.3 million to $13.8 million. So, our sales came in right in the range, which is good, that’s what we want.

And I’ll explain what I mean by what we want a second, adjusted EBITDA estimate was $3.6 million to $4.1 million. So we came into the top of the range, but let’s say we’re still within the range of — yeah, we’re just at the top end of the range. Now, remember our forecast philosophy, I’ll remind you, this is for every quarter is, we will play this what we consider to be a game where we give you numbers that we know we can beat so we can be heroes. We think that’s got affiliates [Phonetic] insulting to you and plus it violates with our principles, which is — we always tell the truth.

And as we know, we could be wrong, we can make mistakes, but if we believe something we’re going to tell you, we’re not going to tell you, we believe X, we’re going to tell you X minus 3% or something like that. So we could be heroes. We know a lot of companies do that and probably almost all of them do it, but that’s not for us. So we just want you to understand that. So we give you an estimate, a prediction. This is what we think is going to happen. We could be wrong, but that’s what we think is going to happen. We’re not shading it to look like heroes. Certain factors which affected our Q4 and Q1 sales and margins — in Q4 sorry, we already mentioned that there is a $3.5 million in sales of central component.

For missile programs, very low margin, just a markup. And Q1 actually was the other side of the coin, the other side of the equation approximately $1 million of sales or materials for those missile programs. Those are very high margins. So you see the flip there. Eventually, all those essential components will be used and produced and pre-packed and sold at good margins, that’s the expectation. In Q1, other factors, favorable product mix and some respects and also cost factors which were favorable for Q1. So that’s only part of the story.

First of all, there are no real unusual items or nothing special unusual that pushed up the bottom line for Q1. Like we just said, a good mix. We had those sales of the, we call, blade materials or materials for missile programs. And I just want to highlight, we’ll get back to this later, there was a very steep GE ramp with no extra people. So it’s easy to say, oh, it’s a good mix and stuff like that. But somebody had to make it happen. And that’s our people making it happen, also with relatively low wage. You increase your production by significant amounts actually compared to Q3. But Q3 compared to Q1, 4 times GE program sales, 4 times. That’s a very, very steep ramp and our people handled it and handled it really well. So, we won’t see those kind of gross margins and EBITDA margins for least next couple of quarters. But it does give us some perspective on what’s possible.

Now, cost side, we need to hire people. We have — as you’ll see from the presentation, we haven’t been successful of that but we still plan to hire people. G&E will increase as one example, of course, increasing because with the pandemic, we were willing to travel but nobody was willing to see us. And we’ve got a core customer. Well, we’re not there rural homes, so hard to visit a customer wonder not there, but we’re hoping that will recover. So there are going to be some increase in costs as we go forward, which is what we want, a good thing.

Let’s go on to Slide 5. This is just historical perspective. Look at those gross margins, nothing close to 40% and EBITDA margin nothing close to 30% even during those so-called good years like fiscal 2020. So, on that one, let’s get moving, Slide 6. Slide 6, okay, Matt’s going to take over on Slide 6. So, go ahead, Matt. Please help us out with Slide 6.

Matt Farabaugh — Senior Vice President and Chief Financial Officer

Sure. On the cash investment yields, I’ll just to, like at the end of the quarter, our cash and marketable securities were approximately $117 million, very similar to the fiscal 2021 year-end cash marketable securities. Park invests in highly likely [Phonetic] high rated US Treasuries, agencies and corporate bonds.

For Q1, our portfolio yielded 0.35%, so rates very low. This is reflecting the decreasing rates on investments and our longer-term investments maturing and as they get reinvested. So far this calendar year, until just recently, treasuries as long as three years have been yielding less than that 0.35%. For comparisons, at January 1, 2020, Treasury yields for one year all the way through the three-year treasuries were all between 1.5% and 1.6%. Highly rated corporate bonds earn a little bit better, but not much.

Just to give you some perspective. Last calendar year, our investments earned — last calendar year, our investments earned on average 1.76%. For the trailing 12 months that just ended, they earned 0.91%, steep drop-off. And for the first quarter, this first fiscal quarter, our investments earned 0.35% as I mentioned before. That’s how fast rates have dropped off. But one year treasury right now will be less than tenth of a percent. Net investment income will remain very low until we see a recovery in short-term interest rates.

So moving on to tax rate, our effective tax rate for the first quarter was 30%, 30.0%. This was higher than normal as we wrote down some deferred tax assets in Singapore that we feel are not going to be realized. Assuming nothing unusual comes up during the year, the rate going forward — the effective tax rate going forward through the fiscal year should be closer to 27% for each quarter. Of course, change in the federal corporate tax rates could change all that. There’s been a lot of talk about potentially after an update with federal tax rate.

Moving to depreciation. Depreciation will climb to the remaining quarters of the year as we bring online our expansion. For the full fiscal 2022 year, depreciation will be similar to last year’s. Last year’s depreciation was roughly $1.2 million. But it will start low and grow throughout the year — throughout the quarters of the year. Next year’s depreciation will not — all of our expansion assets roll online up and running the depreciation will increase somewhat significantly as we have a full year of depreciation on all of those expansion assets.

That’s it for me, Brian, unless if there is anything, I’ll stop here.

Brian Shore — Chairman and Chief Executive Officer

Okay. Thanks. No, that’s great. Okay. Thanks, Matt. Right. Good deal. Let’s go on to Slide 7, we keep moving here. So, this is just a slide that we’ve included before this information. Actually one of our shareholders said they missed it last quarter, so we decided why don’t we put it back in. So, again, I think you know the story, zero long-term debt, net recovery of $117 million in cash. And then, we have a dividend history, $546 million paid since fiscal 2005 and we keep going. So, you can ask any questions about the dividend history, let us know but one we just keep moving so we don’t get too bogged down, a lot to cover.

Slide 8. This is a slide that’s been come kind of, I guess, standard for our presentations of top five customers in alphabetical order, so — and we have nice pictures associated with most of the customers. First, AAE Aerospace, that relates to the picture on top right, the NASA Oriole program. Those are ablative materials we supplied to their program. Next one is GKN Aerospace. Look at top left, the Boeing 787. GKN is a contractor and we are supplying to many programs from GKN, which shows the owned 787 for this presentation materials for structural components what part supplies are credos, they’re pretty common, top 5 customer these days and we usually provide a full picture of one of their drones, the BQM-SS80. And I think we’ve mentioned this before, but we believe with a main supplier of composing materials for their drone programs — for the structures for drone programs.

And the bottom right, actually something more surprising. This is for Nordam. These are radome materials for the WeatherMASTER Radome that are used for the 737 and 737 MAX. For Nordam, we also supplied Nordam through multiple — for multiple programs that we saw with select 737 MAX just for a change of pace, a little bit of a bowling orientation here. Middle River, MRAS, we’ve got plenty of coverage about them. So we don’t need a picture from them for Slide 8.

Let’s move on to Slide 9, kind of interesting, I think that looks like the Q — this is a pie chart, which I think are interesting. Park’s estimated revenues by aerospace market segment. But what’s interesting is, Q1 of fiscal ’22 is starting to work like fiscal 2020. Obviously fiscal ’21 was a big difference with commercial being way down, military being up, but now it looks like we’re kind of returning more to the pattern of fiscal 2020.

Let’s move on to Slide 10. Park loves niche military aerospace program. This is another standard slide that we have and we’re using in the last few presentations. This is a project as well as the top five for Donna and Elena, they always select the interesting programs to talk to you about. These programs aren’t necessarily big or small, they’re just programs we think would be of interest.

Let’s just go through Raytheon MK6-guided missile. That’s a new program for us. We supply ablated materials into that program. Lockheed C-5 Galaxy pretty aircraft that’s been around for quite a while and we supply materials for various structural components. The Boeing Apache helicopter materials for secondary primary structures. The Textron Systems Shadow, which is a drone obviously, materials aircraft structures, but on this program for a while with multiple variants. And here’s something interesting, Airbus C-295 materials for interiors. We consider radomes, rocket nozzles and drones to be kind of niche areas for Park in the military part of our business.

And if you go on Slide 11, this is just a teaser for you. Like I said, we’re trying to make this a little interesting. Launch is planned for the James Webb Space Telescope November of 2021 and going where no man or woman has gone before. That’s I think from Star Trek. This is a program that we feel really, really pleased and privileged to be on. We’ll probably do more of a detailed discussion of the James Webb, maybe when we announce Q2 since the launch is going to be in November 2021. But we thought we’d provide just a little bit of a teaser for you. So, why don’t we just keep going? Lot to cover.

Like I said, Slide 12 are the update in our major expansion of our Newton Kansas facility. A total budget $19 million and spending to-date $16.5 million, funding to go. When you do the math, $2.5 million. The expansion is basically complete [Indecipherable] coming in, but the expansion is basically complete. Manufacturing trials expected to begin later on this month. Qualification runs expected to begin in September of this year.

Just one little caveat there. We’ve discussed this over the last couple of quarters, but we continue to be challenged with our supply chain raw materials. We continue to fight the battle every day. So, we’ve got to see if we feel we have enough raw materials to actually do the qualifications starting and trial starting on these dates. Because what we don’t want to do is start qualifications and trials and then not be able to produce for production, that would not be a good choice. So let’s see what happens. At this point though, this is our plan.

And the last item, it’s important. We push forward with our major expansion when many others are slashing their capital spending. Good thing we did, good thing we did because we’ve been a world of hurt right now if we didn’t do this. Remember, we’ll cover this later. This was originally supposed to be redundant facility for the GE programs. But if we hadn’t done this expansion, especially based upon the indications that Airbus is giving about A320neo program, we’d be in a world of hurt right now because you don’t do an expansion and get it qualified in six months, that doesn’t happen. So it’s very good, we did this in very good, we stuck to our guns. It didn’t falter and flinch and went ahead to fly [Phonetic] in this expansion. There are some pictures. And the bottom right picture is Donna with the door open kind of welcoming this ends and come on in and expansion is complete, that’s their front entrance. So, good.

Let’s go on to Slide 13. Slide 13 is really just going to review slides, so cover it quickly. Like I said, we’re including these slides for perspective, maybe some of you don’t remember everything we covered in Q4. This relates to single-aisle on particular higher jet fuel prices and environmental concerns provide extra motivation for airlines to move quickly to replace less fuel efficient legacy single-aisle aircraft, more fuel efficient modern single aisle aircraft such as A320neo family.

Look at those crude prices. They go up and up and up. I know they’re down a little bit unless day or two, but they go up and up and up. And that needs motivation, motivation, motivation for these airlines to replace their less fuel efficient airplanes with more fuel efficient airplanes. Remember, at the beginning of the pandemic, we said, oh, boy, this crude price is so low, there’s not much motivation. Motivation is very big right now.

China, doing quite well with domestic aviation a little bit of setback with COVID outbreak and lockdown in Guangdong province, but they’re still at the level they were at pre-COVID. They were actually even more than that, now they’re kind of back to that level. So still very positive for single aisle. Domestic translates to single aisle and international translates to wide body.

The US domestic aviation recovered to approximately 84% of pre-COVID levels that we sort of reported recently, full recovery expected in 2022. I haven’t heard that some airlines are saying they expect full recovery by the end of this year, very positive for single aisle sales. And although it is a way to go European Domestic Aviation Authority to recover positive, that’s also a positive sign for single aisle sales. You probably read this United just did a huge single aisle order, that’s all good news and good indication. That was not only for the A320neo, that’s for the MAX as well.

Single aisle aircraft place to be commercially — in commercial aviation at least for now that’s our opinion. Let’s go on to Slide 14. We’re continuing the same theme. Now these are two new items though. So let’s look at these. US and European Union resolved their 17-year long trade dispute involving subsidies of Boeing and Airbus. Okay. We all read about that, I think. But this is kind of interesting. I feel a little strange.

According to the US trade representative, “We are finally coming together against a common threat”. And she mentioned, China, I thought that was interesting comment from her. And then, the next one, Boeing recently stated, it’s in no hurry to develop a new single aisle aircraft delve to 5 times to compete against the Airbus A321XLR that was — both those were a little surprising to me. So, we’ll circle back both those points throughout the presentation. That’s Okay.

Slide 15, we go to the slide very much every quarter. Remember, we have — this is GE Aviation jet engine programs, remember we have that firm pricing LTA as requirements contract from 2019 to 2021 with Middle River Aerostructure Systems as to MRAS, a sub of ST Engineering Aerospace. Let me just remind you that MRAS was a sub of GE Aviation. And that’s why all the programs run through MRAS or GE Aviation programs. A couple of years ago GE Aviation sold MRAS to ST Engineering Aerospace, which is a major aerospace company based in Singapore.

Redundant factory construction, really should say basically complete now nearing completion. So that’s on us. We missed that one. But remember that — that was our deal. Once we entered into that LTA, we agreed, okay, we’re going to go ahead and build a factory and were people of our word. So we went and did that. But as I just said, it’s pretty darn good we did it because we’d be in a world of hurt right now if we hadn’t done that not for redundancy, but for capacity.

We’re sole source on — for composite materials for engine Nacelles and thrust reversers for multiple MRAS programs. The first, let’s see, those are five A320neo family vendors of Boeing 747, the Comac 919, the Comac ARJ-21, which is original jet and a Bombardier Global 7500. You can see some of these programs who are sole source for light material as well, top right. For composite materials are also sole source and primary structural components for Passport 20 engine for the Global 7500, but that’s not part of the MRAS LTA.

The picture of the Legendary Boeing 747-8 Engine Nacelles, I love this picture because it gives you perspective as to how huge these things are. And everything you see here is made with Park materials in terms of the Nacelles, also they’re tough inside, thrust reversers and Also there are stuff inside thrust reversers and a fixed structure which you can’t see.

Let’s go on to Slide 16. Let’s do a little bit of update on the GE Aviation program. Some of this is just review. Some of them it’s new. Let’s start with the A320neo family aircraft, that’s the — sort of big owner for Park anyway. So, the first couple of items we covered during our last Q4 call. Currently at a rate of 40, going to 43 by Q3 and 45 by the end of the year. And that was confirmed by the Airbus CEO during investor call in April 29. He also mentioned a steep ramp in ’22 and ’23 for single-aisle airplanes, A320 family. Then this is new. April — sorry May 27, 2001 news release from Airbus. This is just probably from new release. So this is an easy one. Just direct call. A320 family: Airbus confirms an average A320 family production of 45 aircraft per month by Q4 2021. Okay. That’s consistent with the prior items and calls on suppliers. That means thus to prepare for the future by securing a firm rate of 64 per month going through 64 per month by Q2 of 2023 in anticipation of continuing recovery — continued recovery. Airbus is also asking suppliers meaning us to enable a scenario rate of 70 by Q1 2024. Longer-term Airbus is investigating opportunities for rates as high as 75 in 2025.

Let me just explain what 75 means. That 75 would represent 20% – sorry 21% higher than the peak of our long-term forecast that we’re using. That’s very significant as it pans out both in units and dollars. And let me go into the next item, because it kind of is important that you understand how we get that 21% number.

Next item on Slide 17 continuing as of the end of May 2021 CFM meaning LEAP-1A engine had a 60%. It’s actually I think about 60.4% share a firm orders for the A320neo family aircraft. That’s the source of that is Aero Engine News. So A320neo, two engines are on the A320neo, the LEAP-1A and Pratt engine. So this is saying that in terms of firm orders, this is not forecasting, this is not speculation. This is not some smart guy who thinks we knows what’s going to happen. This is 60% of firm orders. So when we do the math, we use 60%. And that may not pan-out, but that’s what we use just once you understand that. So we say that 75% in the prior page translates to 21% increase over the top of our forecast where peaks that’s based upon assuming a 60% share for the LEAP-1A engine.

Okay, let’s keep going on Slide 17, another little interesting thing. On May 21, 2021, CFM and IndiGo, India’s largest airline, announced that IndiGo selected the LEAP-1A to provide to power an additional 310 A320neo family of aircraft, representing CFM’s largest order ever by a number of units. That was interesting here also. A little side note is India has had some trouble with COVID, as you probably know recently. So it’s been a setback for its commercial domestic aviation industry. But it should be [Indecipherable] they’re going to ahead. So they’re going ahead and ordering these airplanes with these engines, which obviously good for Park.

Then last item on 17, Airbus recently announced it is resuming work on a new assembly line in Toulouse for A320neo aircraft. Airbus announced assembly — this new assembly line is scheduled to be operational by the end of 2022. Why is that significant? So, some people look back at the last item on 16, Airbus ballpark they don’t really mean it, but maybe this is Airbus saying, you’re not I’ll talk and maybe they’re putting their money where their mouth is. I tell you, this is your Airbus, I’m not — I think they’re smart people know what we’re talking about. Just an example, last year they were saying we’re not going to go below 40 and lots of these smart analysts and commentators all it’s not going to happen or going to go below 40. So we don’t know what’s going to happen. We certainly paid attention to Airbus when we said we’re not going to go below 40 and they never went below 40. So we’ll see what happens. I don’t know. We just want to view that perspective. There’s a nice picture of A320neo, A321neo with the LEAP 1A engine on Slide 17.

Let’s go to Slide 18. Let’s talk about this XLR — A321XLR. So some of this we covered, some of it is new. First, test aircraft nearing final assembly for flights expected next year, certification entering the service that’s 2023 that’s like tomorrow in the commercial aviation timeframe. I talk about [Phonetic] 12 years, two years is nothing and they’ve been saying this. They’re not backing down. So that’s pretty important.

Is this going to be a game changer? A lot of people say yeah, it might be because the concept is that this airplane could replace wide bodies and many missions with much lower costs. So here’s a key question. Is this single aisle [Indecipherable] 225 plus seating capacity market being seated to the Airbus A321XLR by Boeing. Boeing said they’re not in a hurry, come up with a competitor. I know what that means. I’m just telling you what Boeing has said. But either way, this is I think will be pretty — my feeling is this could be a bigger plane for Airbus and for Park and we’ll see what Boeing does. And we’ll just have to see. I’m just telling you what Boeing said. I don’t have any insight track in Boeing. I’m not inside Boeing. I’m just telling what they said. So a little surprise about that like I commented previously, but nevertheless that’s what they said.

Let’s go on to Slide 19. Continuing with the updated GE Aviation jet engine programs, the C919. This is the Comac airplane that’s designed to compete against the MAX and A320. It’s a single-aisle. Comac continues to maintain the intended certifiable and begin deliveries of these aircraft before the end of this year. So we’ll see what happens. I think originally it will be for the Chinese market, but they intend Comac Chinese. They want to be role players and commercial aviation. So, as compared to the original jet which is really kind of a China airplane, they want this to be an airplane not just for China, the C919. They want this to be an airplane for the world, meaning we’ve got to certify the FAA and the ASA that kind of thing. But I think it will begin with a Chinese certification delivery into China. This airplane could be a pretty big opportunity for Park once it gets going.

But here’s a couple questions. How will the recent peace treaty between Boeing and Airbus intend to deal with their “common threat” affect Comac and the 919 program. I don’t know. I mean it’s a good question. I sense that it will not affect the domestic sales, Chinese domestic sales, but we’ll see. We’ll see what’s going to happen here. It’s kind of I think strange development. And I think it was strange that the US trade representative was so blunt about the intentions of this peace treaty.

Then the other thing is Comac recently reiterated plans to complete the development of domestic engine alternative to LEAP-1C engine with a C919 by 2025. So, what I would say about this is that in my opinion it’s much more difficult to certify an engine than an airplane. Certifying an engine is a big, big deal. The engines are very complex and a lot going on with engines. So we’ll see if that happens or maybe it will, maybe it won’t.

Slide 20 still going with the updates on the Global 7500 and ARJ-21. We’ve been saying these programs on a ramp mode for the last couple of quarters. That’s based on the forecasts we’ve been given. But now, the nice thing is, we’re seeing in the order pattern with the Passport 20, the Global 7500 even beginning with the ARJ-21. We’re actually starting to see the new order patterns. Nice pictures of these airplanes. So that’s good news.

So let’s go on to Slide 21. And last but definitely not least, a Boeing 747-8. Boeing announced that it will terminate production in the Queen Skies in 2022. Long live the queen. To me, this is a very, very special airplane. And we’ve got pictures of Legendary Boeing 747 Queen of the Skies. A real life, real life means that these pictures are all taken at Anchorage Airport and all taken by me from the cockpit of an airplane to my airplane. The top pictures I was taxiing behind this airplane. By the way, you don’t taxi too closely behind a 747 just in case you ever heard that experience or had that option, don’t do that. And the other one is, just the middle picture is the airplane landing right in front of me also is what’s called holding short of the runway.

Slide 22. This is all review. And I wanted to include the slide, this is kind of gives. I like the pictures, daughter picked out for the slide that gives some perspective on just how bad things were with commercial aerospace last year. I’m not going to go through each item, but it’s just been everywhere commercial airspace was negative. But I’ll cover the last item, aviation analyst and commentators predicted full recovery would not come for many years or may never come, End of Days scenario, I used that term again in the presentation.

Let’s go on to 23 continued. This is all review by Park, we didn’t completely buy all the doom and gloom news. We didn’t buy the End of Days were at hand. We made our deal with MRAS to maintain minimum baseline critical mass production. We discussed this so many times. We won’t go into the details, but I’d just say critically important to Park and MRAS. If this didn’t happen, we would be in a world of hurt. MRAS would be in a world of hurt and guess who also be in the world of hurt, MRAS’s customers, because we’ve allowed our production to go to levels where we couldn’t recover. Then it’d be big problems not just for us, but for MRAS and the customers and I don’t know what we would do about that.

And then, the last item, even though lay-offs were widespread and pervasive, we didn’t lay anybody off. We’re happy about that decision. And it also was very important to Park is that we laid our people we’d be in a real war will hurt right now. You’ll see later on, we’re having trouble hiring people. But if we laid off people, we’d be in a real world of hurt right now. So good thing we didn’t do that.

Slide 24, continuing with this year review. We spoke at length during all four calls in 2021 about the significant divergence from and mismatch between this minimum baseline, critical mass and then current end market requirements for the GE programs. We talk inventory destocking. We said Cantor destock below zero. We don’t you know use negative numbers for inventory. I don’t think Gap allows that. And divergence was mathematical and unsustainable just do your math and let’s do some dramatic step down Day of Reckoning was going to come and well it came. Destocking has ended, at least for the programs we’re on.

Let’s go to Slide 25 here, in front of hustle through. So, the first item, we covered this before. The second item, interesting perspective I think. We alluded to this right at the beginning. And Q3 of last year, GE program sales $1.8 million, Q1 of this year $7 million. That’s about a 4 times increase in two quarters. That’s a big deal. That’s not just talking about forecasting. This actually happened folks. So we talk about these programmers ramping up. Well, let it happen. That’s not just forecasting or somebody’s opinion. This is just facts.

Let’s go on to Slide 26. So Slide 26, we’re continuing same theme. So we talked about this. We received updated long-term forecasts from MRAS. And if we look at long-term forecasts, basically very similar total numbers through the 2029 calendar year as the pre-COVID forecasts. Now, we have an opinion about this though it may not fully capture the upside. Why? The steep ramp up, days between a new aircraft family, production discussed by Airbus in our May 27 news release we referred to in Slide 16, and then a significant potential XLR sales opportunities, especially in light of Boeing’s recent statement about not being in a hurry to develop an aircraft to compete against the XLR that was mentioned in Slide 14. These two may be together, maybe this significant indication by Airbus of significant upside may be related to the XLR and their optimism about the XLR.

I think in prior quarters, I mentioned that it didn’t seem like our long-term forecast that we received from MRAS are fully capturing the XLR opportunity. So, the point is that there is significant upside and we’ve already mentioned that when you talk about 75 that represents 75 per month, 00:37:31 [Indecipherable] 21% increase over the peak of the forecast we received from MRAS for the A320neo.

Now important question though to come back is, how commercial airspace manufacturers supply chain respond to the steep ramp? And this is more of a short-term consideration. We eventually catch up, well nevertheless a very important consideration and there is a lot of talk about the supply chain struggling and we see it as well.

Slide 27. How is Park responding to this — to the GE Aviation programs ramp up all about our people? Park’s current people count 105, like what the heck is going on here, people still getting paid not to work. So, how do we do that? How do we do that with GE programs going up by 4 times since Q3? And by the way Q3, if we look at the presentation for Q3, those are 107 at that time and down to 105 now for Q3. We said we announced Q3, we plan to add 15 to 20 people, what happened? So we didn’t get done, very difficult to hire people right now. Again, it’s very important to lay off.

And we’ve been on time and relatively low wage with an incredibly steep ramp that we had to handle with less people, not more people, less people. So Park’s people are stepping up, getting the job done, that’s what Park people do. They’re not — Park’s people aren’t big in excuses, wanting just to get the job done. Thank goodness for our customer flexibility program. We talk about this every quarter, can’t emphasize enough how important this is, ramping down, ramping up, gives us this flexibility that is very significant. It’s just a godsend. Without this program, I think would be very difficult for us to get the job done. It’s a big deal.

Slide 28, let’s continue here. Thank goodness we did not lay anybody off, because we already recovered this even in the darkest days of the commercial aircraft, aerospace industry’s Armageddon in the deep what right now if we laid people off. We only have 105 people. I think we’d be at the point where we couldn’t even get it done. Thank goodness for Park’s great people, without them we would not be able to get the job done. You can’t say that enough Park is fortunate and blessed to have the great people it has, can’t say that enough. And just every Park person, including Matt and Brian, received a $250 bonus for their dedication and as stunning and as outstanding work during the fiscal first quarter.

So let’s go on to Slide 29, a little bit busier here. GE Aviation program sales history and forecast estimates. The top of the page is the history of Q1 $7 million, I think we already alluded that. And during our Q4 call, we predicted $6.5 million to $7 million. So we came in just at the top of that range of our prediction.

Now let’s look at the forecast. So, Q2 for GE program, we’re forecasting $6 million to $6.25 million. The previous forecast, we gave you during Q4 was $6.5 million to $7 million. So we brought those numbers down. We’ll talk about that in a second Q3 and Q4. Those are new. We haven’t given you forecast for Q3 and Q4. Previously, the Q — sorry — this will point to total, that’s unchanged, $26 million to $28 million. That’s what it was before. So, the short-term, let’s talk about what happen in Q2, why are we bringing numbers down. Short term, it’s always difficult to nail because of inventory practices which can move things to quarter-to-quarter. So — and also, I mentioned before that MRAS uses the company to manage inventory. So there’s multiple layers. You have MRAS as a company and it’s difficult sometimes for us to see through. We get a consistent information. Not that anybody is giving us information and they don’t lead this correct or misleading us, it just that it’s complicated. So we do the best we can, work out real hard. But all we can do is kind of guess a little bit.

Ultimately, what matters? The only thing that matters long-term is nothing to do with this. It’s how many A320neos that Airbus produces and sells, how many Comac 919s that Comac produces and sells. How many Global 7500s that Bombardier produces and sells. That’s what matters long-term. Now, we’ll be moved with quarter and quarter of a long-term. That’s what matters. And we spend a lot of attention to the inputs we get from the OEMs, which are not going to directly use public statements. So — but as I said, we’re not changing the forecast for the year. And just we believe there are some upside potentials based on some of the indications that we’re getting from some of the OEMs. But last item supply chain versus the forecast where we mentioned that, I’ll mention it again and probably mention it every quarter now. It’s something that’s a battle, daily battle we have to manage. So far, okay, but no razor kind of been okay.

Let’s go to Slide 30, Park’s financial performance. Just to reinforce, give forecast estimates, little more involved here. So, the top of the page is history. Just for perspective, you know the histories. You don’t spend a lot of time on that. Certain factors which affected Q4 and Q1, we don’t talk about that. That’s the $3.5 million essential components for the missile programs in Q4. $1 million of sales in missile program materials in Q1. What we hadn’t spoken about is in Q2, a proxy $1 million of the central components sales, older sales in the very low margin. So just want you to be aware of that for Q2.

Now, for Q2, what we did, we gave you forecast for Q2 when we announced Q4 and we brought Q2 down, the top line was 14% to 15%, now it’s 13.25% to 14.25%. The EBITDA forecast previously was 3.3% to 4%, now 3% to 3.7%. Basically what we did was, brought Q2 down, the company Q2 down the revenues or sales by the reduction in the GE forecast for Q2, which is kind of pass that reduction through. So, not a lot of really a math going on there pretty straight forward. Let’s see.

We have not changed the forecast for the fiscal year though at this point. No reason to do that. Let’s see what else we want to talk about here. So, what are the risks? We talked with just a little bit, but we probably want to talk about again. International shipments and transport, that’s a risk for Q2. These are shipments, Park shipments to customers that are overseas. International shipments have become more and more challenging. So we might be ready to ship something, but the shipping company is not ready to do it. It’s not a sale until we ship.

We have costs that are elevating or escalating, I should say. Some costs are covered. We pass them through, some costs are locked in. We have long-term agreements with suppliers and some may not be either to supply chain risk. We talk about that with respect to GE and also with respect to Park. And then there’s cost. We talked about this earlier. We’re hiring people. We have TNE that will probably go up. So we just want you to keep those things in mind.

Q1 was a little unusual in that respect that we weren’t able to hire people and the TNE was still pretty low because we weren’t able to travel very much to see customers. We’re also concerned about risk to the economy, inflation, concerns about our economy and our country. We need to keep our heads about us. As we say, we didn’t by the End of Day scenario last year with the pandemic, but we don’t necessarily buy the happy days are here again scenario either, was it Greenspan irrational exuberance or something like that. I think, that’s what he said. We’re concerned about that and we’re just really paying attention carefully and watching carefully. And the most important thing before we lose our head last year, let’s not lose our head this year. Let’s take a call up and irrational exuberance stuff because we think there are some risk in terms about the economy and maybe our country generally.

Our long-term forecast, a few of you asked us, well, whether we’re going to rationalize [Phonetic] long-term forecast, obviously not now, maybe Q2 but probably I think more likely Q3. Here’s the thing. As we just went through, there’s still a lot of risk, a lot of uncertainties, we don’t want to give you a forecast, it just puts numbers out there. Obviously no forecast is guaranteed, but we want to have some reasonable confidence that these numbers look like, the reasonable numbers. Until we get there, it doesn’t make sense. Just get, put numbers out for you which kind of doing a disservice to you and it’s insulting to you to give you numbers that we don’t really believe in. Not that they’re guaranteed, but numbers that we feel are reasonable. So, we’ll see, that’s our feeling about the long-term forecasts.

Slide 31, update on the acquisitions, other strategic investment activity. Sorry, I know it’s going to be really long, [Indecipherable]. Bank-related auctions, we’re still trying. We did one. We participated in one recently. We got to second round. We backed out. That’s the reason. It’s often not what we want. These are aerospace companies but that’s on and off. It has to be something that makes more sense for Park.

And also, we’re competing against this cheap and easy money which makes it even more difficult. We’re not going to the bay just because there’s a lot of cheap and easy money out there. What do they say? We’ve got to keep our heads about us and not get caught up in the mob mentality or esoterica. So what we’re doing is strategic targeting of aerospace industry market segments with product lines. We think this makes much more sense and we’ve done a lot of work on it. We’ve identified segments. We start the product tender the company, this is more difficult. Why? Because we don’t have option. Guess what, the company is for sale. Sort of contacting companies that target market normally not for sale. So we have to open the discussion up and take some time and be patient.

Our JV is still working on them and potential strategic investments and key aerospace network programs, that’s something that we are pursuing on a number of different programs. We reached out to OEMs and we’ll see what happens. But we think that’s an interesting opportunity for Park. And then in some cases, I think they even reached out to us. Why don’t we keep moving here? Really it’s strange times these are our final slides. So, again, apologize for the very long time on the presentation.

Strange days have found us. I think that’s from the doors and people getting paid not to work, free money being force fed into the system. In the old days, people believed work was something honored and valued, it gave the person self-respect, self-reliance, dignity, but now maybe not, free money used to be that you worked hard, you sacrificed, you were frugal with your money. And one day this is not a person, a company, you barely use that hard earned money because it has some real value, you did something important for the company. But now it’s just use a cheap and easy money. It doesn’t work out, it doesn’t really matter because it never was really your money anyway.

So it’s kind of sad actually and why bother to work hard and sacrifice because why do that? Why don’t you just tap into the cheap and easy money? It’s kind of tragic in our opinion. But we’re — so sorry, continuing the world seems upside down and backwards to us. Where it’s supposed to matter, doesn’t, where it was not supposed to matter does, but at the end of the day, Park we’re not philosophers and politicians. We work for a living. We keep pressing forward. We do not stop. We do not back down. We do not relent. We just don’t do those things. It is not in our nature. As I just said at Park, we work for a living, not philosophers or politicians. And at Park, we make money for owners. Those are too old fashioned concepts that we still believe in.

Let’s go on to Slide 33. Our family — our Park family sticks together. We take care of each other. We honor the one we lost, who we will not forget ever. Park is a strange and unusual company filled with wonderful and special people. We’re very fortunate when it comes to our people. At Park, we’re not like the others. We play for keeps. We’re not pooling around. We work to make an impact.

We were at the end of our presentations with a picture of one of our crews or teams. This is our Q1 production lab team. The top row, Bailey, April. She’s actually QE now. Aaron, Leo who’s known me for a while. Great guy. He is the second shift supervisor. Halley, Patricia. Front row, Nancy. She’s first shift supervisor. Taylor, Scott didn’t make the photo op. And if you know one thing about our business, you’re probably saying well where’s everybody. No, sorry this is it. This is our lab crew, production lab crew for our Q1. This is all we had. And we hired two people since Q1. So you say my God, how did we get stuff done. Production lab work for our kind of business is quite complicated, quite involved and it’s part of production process, just like manufacturing, it’s critical. You can’t — we can’t ship product to customers until it’s been — they’ve been tested. And sometimes the test is very complicated involving multiple steps, involving multiple days for sure.

But these folks are all multiple job category approvals under the customer flex program and they all stepped up. As I said, it was not tested, it’s not shipped and we ship, we shipped everything. A great job, great dedicated part, people thank you very much to these people.

And that concludes your presentation. Thank you. And operator, hopefully some people or somebody still listening who’s ready to take questions now.

Questions and Answers:

Operator

[Operator Instructions] We have a question from Brad Hathaway with Far View. Your line is open.

Brad Hathaway — Far View Capital — Analyst

Hi. Congrats on another very good quarter. I appreciate that you’re not giving specific long-term guidance. But I was curious in your commentary on the kind of 21% increase in Airbus SUV versus your kind of prior long-term forecast. And I’m just curious kind of if you look, I guess, kind of business line by business line, how do you think just directionally most of what you’re seeing compares to kind of what you previously thought in that forecast?

Brian Shore — Chairman and Chief Executive Officer

Do you mean like by segment, Brad, is that you’re referring to?

Brad Hathaway — Far View Capital — Analyst

Yeah. Maybe I mean commercial military business have you opened that?

Brian Shore — Chairman and Chief Executive Officer

Okay. Got it. So, commercial is very dependent on — commercial and actually business aircraft very dependent on GE Aviation programs. There are definitely other problems on for commercial and business but those are the big dogs. The thing that probably drives commercial at this point and more than anything else is the A320neo program, although the other programs are significant and moving up. It’s really hard for us to figure out what to make of these Airbus statements in the news release. There are some skeptics that say, well, it doesn’t — what if the Airbus have to lose? They just want to get the supply chain ramped up and doesn’t materialize. Well, that’s the problem with supply chain.

I’m not in that camp exactly. I think that we should listen to what they’re saying. And we’ll see what happens. But that difference is a multi-million dollar difference between how our A320 tops out in the forecast we have from MRAS. Our forecast with MRAS is just based on units. I think I explained that before. So we have the units. We know per year. We know what the content is per unit. So it’s easy to do the math and figure out what the revenues are. It’s many millions of dollars difference. So, would you say that just to give a little perspective.

The rest, we’re just going to really want to wait and see. I think it’s kind of weird situation because some people — happy days are here again. And some people still going to little doom and gloom. And I think we’re kind of in the middle. And we’re not sure what to believe and where things are going. We see some real risks, but then we see the upside as well. But, Brad, it’s just hard at this point for us to rake a quantitative judgment that could translate into numbers in terms of top line. And like I said, we think we’ll be doing you a disservice by just kind of throwing stuff out there.

Military, that’s interesting. It’s just something that we keep working on, working on, working on. Every quarter, we give you some new pictures and new military programs — maybe not new that quarter, but new to the presentation. And we will feel real encouraged about military. I think it’s a real good opportunity for us, especially in the niche areas where a lot of others just want to bother us too much trouble. It’s not worth it. Those are where the good margins are for us anyway. So we’re encouraged by military. The third segment, business aircraft, is largely driven by that Bombardier Global 7500, but other programs — other business aircraft programs that we’re on that don’t relate to GE Aviation, but that’s, let’s call it a big dog and business aircraft if you want to separate into those three segments.

Brad Hathaway — Far View Capital — Analyst

Got it. Great. That’s helpful. So, I guess, it’s kind of waiting to see whether these kind of 75 in 2025 in Airbus is a real number, okay — is that okay?

Brian Shore — Chairman and Chief Executive Officer

Sorry?

Brad Hathaway — Far View Capital — Analyst

I thought you could [Indecipherable].

Brian Shore — Chairman and Chief Executive Officer

Oh, yeah. I think we’ll — right, we’ll wait to just talk we’re just saying. We’ll wait to see what other comments come off from Airbus and we’ll just be watching what happens in the market. When you get in the go, ordering loads of airplanes with these Leap engines, that’s a plus right. So we got to watch and pay attention to pretty much everything.

Brad Hathaway — Far View Capital — Analyst

Got it. And what do you think about the long-term potential for the Comac 919? How big a program could that potentially be for you?

Brian Shore — Chairman and Chief Executive Officer

My opinion is, it won’t be the size of A320 but it could be significant. That’s a significant potential. So, we have a lot of content on those engines and it has significant potential. Let’s see what happens. We hope that they are successful in getting the airplane certified and production leave for China. We hope they’re successful in certifying in the rest of the world. We’re not sure what to make of these three between Boeing and Airbus now that it affects your Comac. So, again, a lot of things going on that are hard to judge. But in terms of being the forecast we have memorize significant opportunity with 919 to Park.

Brad Hathaway — Far View Capital — Analyst

Great. And then, finally, I guess, on the M&A front, so it sounds like you persisted a deal — I was curious about the strategic investment in the aerospace and aircraft again. Can you give a little more color on what that actually means?

Brian Shore — Chairman and Chief Executive Officer

What we’re doing in other words, Brad?

Brad Hathaway — Far View Capital — Analyst

Yeah, potential things you might do when you have a strategic investment as opposed to like a joint venture?

Brian Shore — Chairman and Chief Executive Officer

Oh, okay. So just for perspective, we did actually participate in the auction maybe I think about a month to go. We got into, I guess, the second round. But then we decided to back out because we had a kind of — I don’t know, gut check or whatever you call it, [Indecipherable] internal meeting and we’re determined. This is really a stretch. It’s aerospace, yes, but it’s so far removed from anything Park does. The synergy was just not there. And we say, okay, it’s aerospace, but other than that, I mean, there was not no way in which one and one equals two — sorry, equals more than two, that we could figure out.

What we have done, we decide to do, I think about six months ago, we decided to target a specific aspect of aerospace materials that’s closely related to composite materials. These are other materials that are used to produce composite structures for aircraft. We thought it made a lot of sense. It has a lot more synergy technically with what we’re doing now also polymer chemistry based on. I don’t want to go too far because it’s still something I want to keep a little confidential. So we did, it was kind of typical thing. We did the survey. We came up with the usual suspects of 40, 50 companies and we started narrowing it down. I think we’ve reached out to about maybe eight or 10 of them, and not surprisingly well some said okay, well let’s talk and let’s talk some more and some were not for sale, maybe they thought about getting back to us, there are in two categories.

One are independent companies that’s what different owned by maybe the individual and the other would be a sub or division of a very large company, very kind of different approaches to M&A. It’s a very large company, a contract of business development, okay, we’ll get back to you. Let’s look into it with the individual owner going to be much more delicate and careful and respectful, I would say, of the individual and their personal investment in the company that kind of thing. And we’re doing both. So it’s harder because it’s how like we contacted any of them. Oh great. You call because you’re just about to put up for sale, that would’ve been unrealistic. So, it could take a little more work. But if we’re successful it’ll be a lot better for Park, I believe, than just participating in something that’s auction which often is in aerospace, but other than that it doesn’t really connect the Park’s business very well.

Brad Hathaway — Far View Capital — Analyst

Okay, great. Thank you very much. I appreciate all the color.

Brian Shore — Chairman and Chief Executive Officer

Sure. Nice talking to you.

Operator

[Operator Instructions] Our next question comes from Christopher Hillary with Roubaix. Your line is open.

Christopher Hillary — Roubaix — Analyst

Hi. It’s good to speak to you all.

Brian Shore — Chairman and Chief Executive Officer

Hi, Chris.

Christopher Hillary — Roubaix — Analyst

It’s great to see the strong profitability embedded in your outlook. Wanted to ask, as you look out maybe a little bit farther without giving guidance per se, other aspects or other ways in which the business has developed where you anticipate either greater efficiencies as you, for example, expand your capacity with the latest production technology or are there areas where you see maybe the margins being a little bit more challenged because he’s gone through this whole supply chain disruption, the need to maybe carry higher inventories. I’m curious if there’s any developments in how you’re thinking about your opportunity to capture margins in the medium-term?

Brian Shore — Chairman and Chief Executive Officer

So, efficiencies, I don’t know — with expansion for instance, I don’t know about that. I’m like I don’t think we’re expecting anything significant in terms of manufacturing efficiencies. I think we are already pretty efficient actually. I know that’s a little bit of a dangerous thing to say because you always will look for opportunities to do better. But I think we have a pretty lean pretty low cost structure. I think it’s an appropriate cost structure, but it’s also pretty lean, pretty low cost structure for manufacturing.

And costs, that’s a concern. We pass on and we get raw material increases, we often pass them on. In some cases, we have long-term agreements, which require the supplier not to give us increases or something we could pass on, something you can’t pass on like supplies as an example where we just have to deal with it labor costs for utilities. So, you hear a lot of talk, news about inflation and we certainly see it. I mean, just the airline cost to travel much more than it was six months ago. So, some of these other costs are going up and, to some extent, they’ll be contained and some extent may not be. But it’s something we have to watch for.

In terms of maintaining more inventory, we’d like to maintain more inventory but we’re not able to because of these big components that I said where we’re having some concerns about supply. They have the same forecast we have so we say want to order more so to say. We’re not going to give you more than in the forecast, we’d like to be able to maintain a cushioned inventory, but it’s pretty, Harry, I guess, I would say and it’s a battle every day to manage the inventories. If we could increase our inventories in the world, I don’t believe that would increase our cost structure pretty much, and in fact, our balance sheet, but I’m not how would — I don’t think it would increase our cost structure very much in itself just by increasing our inventories.

Christopher Hillary — Roubaix — Analyst

Okay. And then, maybe one more beat. Given that you’re a domestic manufacturer, particularly as it relates to military business, does the desire to have more domestic production and on-shoring come into play in any way with your existing portfolio of products or maybe how you’re thinking about M&A opportunities?

Brian Shore — Chairman and Chief Executive Officer

Yeah. I wouldn’t — I’m not sure about the M&A part of it, but I believe the fact that we are one of two domestic manufacturers of composite materials for aerospace, it does help us in that regard, gives us more opportunities to develop additional military business. So, we’ll have to see how that plays out a little bit, certainly want to talk about it. But I think to the extent that it’s a factor at all, it would be a plus.

Christopher Hillary — Roubaix — Analyst

Great. Thank you for your time today.

Brian Shore — Chairman and Chief Executive Officer

Sure, Chris. Thank you for your input.

Operator

There are no further questions. Let’s turn the call back over to Brian Shore for any closing remarks.

Brian Shore — Chairman and Chief Executive Officer

Thank you, operator. And thank you all for hanging in. This is probably a record in terms of long stories ever done. As I said, the beginning will be difficult. Please make sure we needed to include some of the slides from Q4 perspective and maybe getting to the presentation, it just took longer. But anyway, thanks again for listening.

We really appreciate it. Of course, any time you can reach out to Matt or me anytime you want. And otherwise, have a great summer and we’ll talk to you soon. Have a good day.

Operator

[Operator Closing Remarks]