Park Aerospace Corp. · NYSE:PKE

Park Aerospace — Q2 FY2024 Earnings Presentation

54 slides from Park Aerospace's earnings presentation, Oct 5, 2023

1. Slide 1: Company Presentation

   Company Presentation October 5, 2023 ***Park’s 70th Year in Business***

2. Slide 2: Forward Looking Disclaimer

   Forward Looking Disclaimer This presentation contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operatin

3. Slide 3: Our Business

   Our Business  Park Aerospace Corp. develops and manufactures Solution and Hot-Melt Advanced Composite Materials used to produce composite structures for global aerospace markets:  Wide array of prepreg materials specifically designed for hand lay-up or automated fiber placement (AFP) manufacturing

4. Slide 4: Our Business (Continued)

   Our Business (Continued)  Park Aerospace also offers:  Specialty Ablative materials for Rocket Motors and Nozzles  Specially designed materials for Radome Applications (including RadarWave® materials)  As a complement to our Advanced Composite Materials offering, Park Aerospace designs and fabri

5. Slide 5: Our History

   Our History  Park founded on March 31, 1954 by Jerry Shore and Tony Chiesa with ~ $50 Thousand Investment  Company started in a small “factory” (garage?) in Woodside, Queens with 5 employees  1954 Results: Park’s Founders  Sales: $124,206.59  Pretax Profit: $887.38  Taxes Paid: $226.21  First

6. Slide 6: Our History (Continued)

   Our History (Continued) November 17, 1960 Park goes Public 1961 Park acquires New England Laminates Company (“Nelco”) in Stamford, CT for ~ $200 Thousand 1984 Park lists on NYSE 1985 Park commences regular Quarterly Cash Dividend Mid-1980’s Park had become global Electronics Business with other anci

7. Slide 7: Our History (Continued)

   Our History (Continued) Jan 2007 Park commits to Aerospace as second major area of business focus Jan 17, 2008 Ground-breaking of Park’s New Aerospace Facility in an empty field in Newton, KS May 2009 Park’s Newton, KS Aerospace Facility opens February 28, 2014 (11:00 PM) Park makes first production

8. Slide 8: Our History (Continued)

   Our History (Continued) December 2018 Park announces Major Expansion of Newton, KS Facility December 2018 Park sells its Electronics Business to AGC Inc. of Tokyo, Japan December 2018 Park’s transformation from an Electronics Company into an Aerospace Company is complete July 17, 2019 Park changes n

9. Slide 9: Major Expansion of Newton, KS Facilities

   Major Expansion of Newton, KS Facilities  December 2018…Park announced Major Expansion of Newton, KS Manufacturing and Development Facilities  Redundant Plant for GE Aviation, MRAS and their Aircraft OEM Customers  Park expects Redundant Plant will also be needed for Manufacturing Capacity  Appr

10. Slide 10: Major Expansion (Continued)

    Major Expansion (Continued)  Expansion includes:  New 60” Hot-Melt Film and Tape Manufacturing Lines  New Mixing and Delivery Systems  New R&D Lab  Expanded Production Lab  Additional Freezer and Storage Space  Space to accommodate additional Hot-Melt Tape Line or Solution Treating Line  Spa

11. Slide 11: Quarterly Results for FY2022, FY2023 and FY2024

    Quarterly Results for FY2022, FY2023 and FY2024 (In Thousands)* FY22 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY23 Q1 FY23 Q2 FY23 Q3 FY23 Q4 FY24 Q1 FY24 Q2 Sales $13,594 $13,618 $13,864 $12,502 $12,783 $13,875 $13,867 $13,530 $15,551 $12,481 Gross Profit $5,472 $4,411 $3,836 $4,198 $4,092 $4,086 $4,444 $3,851 $

12. Slide 12: Quarterly Results (Continued)

    Quarterly Results for FY2022, FY2023 and FY2024 (In Thousands) (Continued) • Since all of the GE Aviation Jet Engine Programs which Park supplies into are ramping up and going strong, why the steep drop in GE Aviation Programs Sales in FY2024 Q2…what is going on here? • It is all about the MRAS* Inv

13. Slide 13: Quarterly Results (Continued)

    Quarterly Results for FY2022, FY2023 and FY2024 (In Thousands) (Continued)  But, before we move on, I believe we must give a special shout-out to Park’s People for their outstanding job in delivering the margins achieved in FY2024 Q2 considering the $3.1 Million drop in revenues compared to FY2024

14. Slide 14: Historical Fiscal Year Results

    Historical Fiscal Year Results (In Thousands)* FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 Sales $31,837 $40,230 $51,116 $60,014 $46,276 $53,578 $54,055 Gross Profit $8,299 $11,288 $16,184 $18,673 $13,191 $17,917 $16,473 Gross Margin 26.7% 28.1% 31.7% 31.1% 28.5% 33.4% 30.5% Adjusted EBITDA $1,

15. Slide 15: FY2024 Q2 Top Five Customers

    FY2024 Q2 Top Five Customers (in Alphabetical Order) Aerospheres, Inc. Kratos Defense and Security Solutions Middle River Aerostructure Systems (MRAS) and its subcontractors LifePort Inc. Gulfstream G280 The Nordam Group Kratos Valkyrie XQ-58A UAS COMAC C919 Boeing 737-800 100523 Slide 15

16. Slide 16: Aerospace Market Segment

    Park’s Estimated Revenues by Aerospace Market Segment FY2021 FY2022 FY2021 Revenues: FY2022 Revenues: $46.3 Million $53.6 Million FY2023 FY2024 First 6 Months FY2023 Revenues: FY2024 First 6 Months Revenues: $54.1 Million $28.0 Million 100523 Slide 16

17. Slide 17: Park Loves Niche Military Aerospace Programs

    Park Loves “Niche” Military Aerospace Programs Mk-125 Alenia Warhead C-27J Spartan Park’s Estimated FY2024 First 6 Months Military Revenues by Market Segment Sikorsky CH-53 Sea Stallion Mk-41 Vertical Launching System Estimated FY2024 First 6 Months Military Revenues: $11.8 Million 100523 Slide 17

18. Slide 18: Aerospace Industry Trends and Considerations

    Aerospace Industry Trends and Considerations A Brief Update  The U.S. A&D industry has fully rebounded from the pandemic, according to the Aerospace Industry Association  Military Markets  Military Markets continue to be very strong • Fueled by the ongoing War in Europe and major global tensions

19. Slide 19: Aerospace Industry Trends (Continued)

    Aerospace Industry Trends and Considerations A Brief Update (Continued)  Commercial Aerospace Markets  Optimism abounds  Paris Air Show “vibes” were borderline euphoric • Claims coming from the Show about the Commercial Aircraft industry being “back” and putting the horrors of the pandemic in the

20. Slide 20: Supply Chain

    Aerospace Industry Trends and Considerations A Brief Update (Continued) ***SUPPLY CHAIN***  Main impediment to recovery and ramp back up for both Military and Commercial Aerospace industries  Demand is certainly there, but when will the industry be able to produce the commercial aircraft and milit

21. Slide 21: Aerospace Industry Trends (Continued)

    Aerospace Industry Trends and Considerations A Brief Update (Continued)  According to Airbus, the three key Supply Chain issues are electronic components (semiconductors), engines and “raw materials”  No issues for Airbus with raw materials from Park though  And what is the Supply Chain crisis re

22. Slide 22: Aerospace Industry Trends (Continued)

    Aerospace Industry Trends and Considerations A Brief Update (Continued) • According to Airbus, the aerospace industry used to be able to hire back 8 out of 10 employees that it let go, but now the industry has only been able to hire back 2 out of 10 employees who were let go during the pandemic  Wo

23. Slide 23: GE Aviation Jet Engine Programs

    GE Aviation Jet Engine Programs  Firm Pricing LTA (Requirements Contract) from 2019 through 2029 with Middle River Aerostructure Systems (MRAS), a subsidiary of ST Engineering Aerospace (STE)  Redundant Factory…Construction is complete and factory is in production!  Sole Source for Composite Mate

24. Slide 24: GE Aviation Jet Engine Programs (Continued)

    GE Aviation Jet Engine Programs (Continued)  Park Composite Materials are Sole Source on primary structure component for Passport 20 Engines for Bombardier Global 7500/8000 (not included in MRAS LTA)  Fan Case Containment Wrap for GE9X Engines for Boeing 777X Aircraft  Produced with Park’s “AFP”

25. Slide 25: Update on GE Aviation Jet Engine Programs

    Update on GE Aviation Jet Engine Programs  A320neo Aircraft Family with CFM LEAP-1A Engines (includes A319neo, A320neo, A321neo, A321LR and A321XLR Aircraft Variants)  Airbus has a huge backlog of A320neo Aircraft Family firm orders of 6,720 Airplanes as of July 31, 2023 (Source: September edition

26. Slide 26: Update on GE Aviation Jet Engine Programs (Continued)

    Update on GE Aviation Jet Engine Programs (Continued)  Not too bad…according to reports, in 2023 YTD through August, Airbus delivered an average of 43.5 A320neo Family Aircraft per month…and they delivered an average of 50 A320neo Family Aircraft per month over the last 4 months  Clearly, based up

27. Slide 27: Update on GE Aviation Jet Engine Programs (Continued)

    Update on GE Aviation Jet Engine Programs (Continued) • But that has all changed now  In the last few months, the LEAP-1A has broken out as the clear market share winner for the A320neo Aircraft Family  The CFM LEAP-1A market share of firm orders for the A320neo Aircraft Family has jumped to 66.0%

28. Slide 28: Update on GE Aviation Jet Engine Programs (Continued)

    Update on GE Aviation Jet Engine Programs (Continued)  At the delivery rate of 75 A320neo Family Aircraft per month, the 66.0% LEAP-1A market share translates into 1,188 LEAP-1A engines per year  What is that worth to Park? There currently are 8,144 firm LEAP-1A engine orders (Source: September ed

29. Slide 29: Update on GE Aviation Jet Engine Programs (Continued)

    Update on GE Aviation Jet Engine Programs (Continued)  The inspection and repair work is expected to take up to 300 days per engine  It is difficult to fully comprehend the full implications of the crisis and where it is going, but the story may be far from over  Whenever it seems like the crisis

30. Slide 30: Update on GE Aviation Jet Engine Programs (Continued)

    Update on GE Aviation Jet Engine Programs (Continued)  MSN11080 (F-WWAB), the third LEAP-1A Powered Airbus A321XLR prototype, recently completed a 10-day certification flight-test campaign • Airbus expects entry into service of the A321XLR in the second quarter of 2024 • Boeing does not have a resp

31. Slide 31: Update on GE Aviation Jet Engine Programs (Continued)

    Update on GE Aviation Jet Engine Programs (Continued)  China Eastern Airlines recently announced an order of 100 additional C919 Aircraft to be delivered from 2024 to 2031 • This is the largest order to date for C919 Aircraft  GallopAir of Brunei recently announced an order of 15 C919 Aircraft  C

32. Slide 32: Update on GE Aviation Jet Engine Programs (Continued)

    Update on GE Aviation Jet Engine Programs (Continued)  Boeing 777X Aircraft with GE9X Engines  Planned 2025 Entry into Service  Program is currently active for Park  Potentially significant program for Park Boeing 777X undergoing Cold Weather Testing in Fairbanks, Alaska  The Legendary Boeing 7

33. Slide 33: GE Aviation Jet Engine Programs Sales History

    GE Aviation Jet Engine Programs Sales History  GE Aviation Programs sales history:  FY2020 Total: $28.9 Million  FY2021 Q1: $4.1 Million  FY2021 Q2: $2.9 Million  FY2021 Q3: $1.8 Million  FY2021 Q4: $4.4 Million  FY2021 Total: $13.2 Million  FY2022 Q1: $7.0 Million  FY2022 Q2: $6.5 Million

34. Slide 34: FY2024 Q2 GE Aviation Sales and the MRAS Inventory Burn-down

    Park’s FY2024 Q2 GE Aviation Sales Are All About the MRAS Inventory Burn-down  The sharp drop-off in FY2024 Q2 GE Aviation Programs Sales is all about MRAS’s burn-down of Park inventory carried by MRAS (and its subcontractors)  The MRAS CY2023 build plan (their build plan, not ours!) translates in

35. Slide 35: MRAS Inventory Burn-down (Continued)

    Park’s FY2024 Q2 GE Aviation Sales Are All About the MRAS Inventory Burn-down (Continued)  So, why the inventory burn-down? Why the “surprise” about the “excess” Park inventory being carried by MRAS?  MRAS is a wonderful customer, the relationship between MRAS and Park is very special and unusual

36. Slide 36: MRAS Inventory Burn-down (Continued)

    Park’s FY2024 Q2 GE Aviation Sales Are All About the MRAS Inventory Burn-down (Continued)  But, considering all of the wonderful things which have resulted from the relationship with MRAS and the many wonderful things still expected to come from the relationship, on balance, there is no question wh

37. Slide 37: MRAS Inventory Burn-down (Continued)

    Park’s FY2024 Q2 GE Aviation Sales Are All About the MRAS Inventory Burn-down (Continued)  One more consideration regarding inventory management… • As a general matter, it is very important to avoid over-correcting, as doing so can create additional volatility with increasing sine wave amplitudes i

38. Slide 38: MRAS Inventory Burn-down (Continued)

    Park’s FY2024 Q2 GE Aviation Sales Are All About the MRAS Inventory Burn-down (Continued)  In any event, what do we think about all of this?  We think it is mostly short-term noise and static  We think the freight train (the “Juggernaut”) is coming down the tracks at us at 100 miles per hour…and

39. Slide 39: Financial Outlook for Park and GE Programs An Update

    Financial Outlook for Park and GE Programs An Update  Because of the uncertainty related to FY2024 Q3 and Q4 GE Aviation Programs Sales resulting from the inventory burn-down and inventory management challenges discussed above, we are not able to provide meaningful GE Aviation Programs and Park for

40. Slide 40: Financial Outlook (Continued)

    Financial Outlook for Park and GE Programs An Update (Continued)  In providing these outlooks, we are assuming the following: • There is not a severe or prolonged economic downturn during the Outlook timeframe • The global supply chain returns to some level of normalcy • Inflation moderates and ret

41. Slide 41: Updated GE Aviation Jet Engine Programs Revenue Outlook

    Updated GE Aviation Jet Engine Programs Revenue Outlook…the “Juggernaut” Engine Units per Year Revenue per Engine Annual Revenues per Program Assumptions¹ Unit Estimates² Program Estimates 4 A320neo³ 1188 $30,500 $36,235K 5 PP20 90 $49,000 $4,410K 6 C919 200 $26,500 $5,300K 7 ARJ21 55 $29,500 $1,625

42. Slide 42: Park Aerospace Corp. Financial Outlook

    Park Aerospace Corp. Financial Outlook principally based upon growth estimates of Programs on which Park is Sole-source Qualified…An Update 6 Sales EBITDA FY23 Base Year $54.1M* $11.5M Estimated GE Programs Incremental Sales¹ $32.7M Estimated incremental sales for ADL ADRS, Kratos Valkyrie Unmanned

43. Slide 43: Financial Outlook (Continued)

    Park Aerospace Corp. Financial Outlook principally based upon growth estimates of Programs on which Park is Sole-source Qualified…An Update 6 (Continued) ¹ GE Programs Outlook Sales of $55.0M minus FY23 GE Programs Sales of $22.3M equals $32.7M. ² Park is sole-source qualified on these three program

44. Slide 44: Financial Outlook (Continued)

    Park Aerospace Corp. Financial Outlook principally based upon growth estimates of Programs on which Park is Sole-source Qualified…An Update 6 6 (Continued) The above financial outlook analysis is not a forecast as it only considers the estimated growth of programs on which Park is already sole sourc

45. Slide 45: Brief Update on Selected Programs

    Brief Update on Selected Programs  Aero Design Labs (ADL) ADRS (Aero Drag Reduction System) for Boeing 737NG Aircraft  The ADRS was recently certified on the Boeing 737-800, the Boeing 737 variant with the most units in service  According to ADL, the fuel burn reduction from their ADRS measured b

46. Slide 46: Brief Update on Selected Programs (Continued)

    Brief Update on Selected Programs (Continued)  It is believed by many that the Kratos Valkyrie UAS is ideally suited for the Replicator Program  Park’s advanced composite materials are sole source qualified on the Valkyrie program  Patriot PAC-3 Missile Defense System  Demand continues to be ver

47. Slide 47: Analysis of Park Cash and Cash Application

    Analysis of Park Cash and Cash Application (in thousands) Net Cash and Marketable Securities $74,200 as of August 27, 2023 Transition Tax Installment Payments remaining¹ $9,300 Solution Treater for ADL and other projects² 6,000 Additional Major Capital Projects ? Additional Park stock buy-backs, if

48. Slide 48: Balance Sheet, Cash Dividend History and Share Buy-back Activities

    Park’s Balance Sheet, Cash Dividend History and Recent Share Buy-back Activities  Park has zero long-term debt!  Park reported $72.4 Million of Cash and Marketable Securities as of the end of FY2024 Q2  Park’s Cash Dividend  While others cut or cancelled their dividends, Park maintained its regu

49. Slide 49: Balance Sheet, Dividend History and Buy-back (Continued)

    Park’s Balance Sheet, Cash Dividend History and Recent Share Buy-back Activities (Continued)  As announced on May 23, 2022, Park’s board of directors authorized Park’s purchase of up to 1,500,000 shares of the Company’s Common Stock on the open market and in privately negotiated transactions  On M

50. Slide 50: Aeroadhere FAE-350-1 Structural Film Adhesive Product

    Park Recently Introduced Our New Aeroadhere™ FAE-350-1 Structural Film Adhesive Product  On May 9, 2023, Park announced the introduction of Aeroadhere™ FAE-350-1, our new Structural Film Adhesive Product for use in bonding of aerospace primary and secondary structures  Aeroadhere FAE-350-1 is a 35

51. Slide 51: Update on James Webb Space Telescope

    Update on James Webb Space Telescope (More Cool Stuff!)  Reminder: 21 of Park’s proprietary SigmaStruts™ are incorporated into the structure of the JWST  The JWST (along with Park’s SigmaStruts produced in Newton, Kansas) is established at the Lagrange 2 (L2) Orbit Point located approximately One

52. Slide 52: The Park Family: The Secret Continues

    The Park Family The Secret Continues  Update on Park’s Great Customer Flexibility Program  Current Total Participation: 62%...Participation break-down: • 2 job categories: 43% • 3 job categories: 30% • 4 job categories: 20% • 5 job categories: 7%  One of the “secrets” to our success…  The Park F

53. Slide 53: The Park Family: The Secret Continues (Continued)

    The Park Family The Secret Continues (Continued)  As previously stated, we need to get ready for the Juggernaut…or we too will be overrun…  Our Great Park People are committed to making money for our Owners every quarter, but we run our business for Park’s future...for the long-term… not for the n

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