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Edited Transcript of PKE earnings conference call or presentation 4-Oct-18 3:00pm GMT

Q2 2019 Park Electrochemical Corp Earnings Call

MELVILLE Oct 5, 2018 (Thomson StreetEvents) -- Edited Transcript of Park Electrochemical Corp earnings conference call or presentation Thursday, October 4, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian E. Shore

Park Electrochemical Corp. - Chairman & CEO

* P. Matthew Farabaugh

Park Electrochemical Corp. - Senior VP, CFO & Principal Accounting Officer

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Conference Call Participants

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* Bradford Alan Evans

Heartland Advisors, Inc. - SVP, Director of Equity Research and Portfolio Manager

* Christopher Edmund Hillary

Roubaix Capital, LLC - CEO and Portfolio Manager

* Sean Kilian Flanagan Hannan

Needham & Company, LLC, Research Division - Senior Analyst of Smart Grid, Electronic Mfg Svcs, IT Components & Electronic Components

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Presentation

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Operator [1]

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Good morning. My name is Daniel, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corporation's Second Quarter Fiscal Year 2019 Earnings Release Conference Call. (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.

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [2]

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Thank you, operator. This is Brian. Good morning, everybody. I have with me Matt Farabaugh, we're in Kansas by the way, and sitting together for a change. Normally we're on different lines, so this call we should be very well coordinated. Anyway we'll go through our normal introductory remarks, Matt will start with the financial commentary, and then I'll add some business commentary, and then we'll go to the Q&A. Go ahead, Matt, why don't we get started.

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P. Matthew Farabaugh, Park Electrochemical Corp. - Senior VP, CFO & Principal Accounting Officer [3]

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Okay. Thanks, Brian. Certain statements we may make during the course of this discussion, which do not relate to historical financial information may be deemed to constitute forward-looking statements. Any forward-looking statements are subject to various factors that could cause actual results to differ materially from our expectations. We have set forth in our most recent annual report on Form 10-K for the fiscal year ended February 25, 2018, various factors that could cause -- that could affect future results. Those factors are found in Items 1 and 1A of that Form 10-K. Any forward-looking statements we may make are subject to those factors.

As Park has entered into an agreement to sell its electronics business to AGC, Inc., this presentation will focus on the aerospace business that will remain with Park going forward. All comparisons to prior periods have been updated to exclude electronics. I'd like to briefly review some of the items in our fiscal year 2019 second quarter ended August 26, 2018 P&L. Park's sales were $11.2 million in the 2019 fiscal year second quarter compared to $11.4 million in the 2018 fiscal year second quarter, and $10.4 million in the 2019 fiscal year first quarter. Gross profit for the 2019 fiscal year second quarter was $3.1 million or 28.1% of sales compared to $3.2 million or 28.3% of sales for the 2018 fiscal year second quarter, and $2.9 million or 27.4% of sales for the 2019 fiscal year first quarter.

Selling, general and administrative expenses for the 2019 fiscal year second quarter were $2.1 million or 18.9% of sales compared to $2.2 million or 19.7% of sales for the 2018 fiscal year second quarter, and $2.1 million or 20.2% of sales for the 2019 fiscal year first quarter. Investment income, net of interest expense, in the 2019 fiscal year second quarter was $357,000 compared to $148,000 in the 2018 fiscal year second quarter and $340,000 in the 2019 fiscal year first quarter. Earnings before income taxes for the 2019 fiscal year second quarter were $1.4 million or 12.4% of sales compared to $1.1 million or 9.8% of sales for the 2018 fiscal year second quarter, and $1.1 million or 10.5% of sales for the 2019 fiscal year first quarter.

Before special items, net earnings for the 2019 fiscal year second quarter were $1.0 million or 9.2% of sales compared to $0.9 million or 7.6% of sales for the 2018 fiscal year second quarter, and $0.8 million or 7.9% of sales for the 2019 fiscal year first quarter. Depreciation and amortization expense in the 2019 fiscal year second quarter was $434,000 compared to $452,000 in the 2018 fiscal year second quarter, and $432,000 in the 2019 fiscal year first quarter. Capital expenditures in the 2019 fiscal year second quarter were $160,000 compared to $319,000 in the 2018 fiscal year second quarter, and $10,000 in the 2019 fiscal year first quarter.

EBITDA for the 2019 fiscal year second quarter was $1.7 million compared to $1.7 million for the 2018 fiscal year second quarter, and $1.4 million for the 2019 fiscal year first quarter. EBITDA for the 2019 fiscal year first 6 months was $3.0 million compared to $2.2 million for the last year's comparable period. The effective tax rate before special items was 25.3% in the 2019 fiscal year second quarter compared to 23.0% in the 2018 fiscal year second quarter, and 25.2% in the 2019 fiscal year first quarter.

For the 2019 fiscal year second quarter, the top 5 customers were AAE Aerospace; GE, including its subcontractors; GKN; Kratos and Lockheed Martin in alphabetical order. The top 5 customers totaled approximately 59% of total sales during the 2019 fiscal year second quarter. Our top 10 customers totaled approximately 73% of total sales and the top 20 customers totaled approximately 84% of total sales for the 2019 fiscal year second quarter.

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [4]

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Okay. Thanks a lot, Matt. This is Brian, again. So we have a few things to cover here. First of all, as you all know, we announced the sale of electronics -- our electronics business to AGC, Inc. of Japan. That announcement was done on -- through a news release on July 25. We haven't spoken live since then, so you may have questions about it. But I did -- because especially -- because we were not going to do an investor call right after the news release, I did add a lot of commentary with my perspective, my thoughts about how I felt about the transaction. So you might want to go back and read that news release because I tried again to be pretty complete. I'm not going to go back through those comments, it doesn't make any sense for me to do that except to say that I think it's a good thing, I feel that it's a very good company, AGC, a very fine company, and I think it's a good result all the way around. But again, you might want to go back and read my comments.

So when we did announce the sale, the agreement to sell electronics, we also indicated that we thought it would close in Q3, and I want to update you on that a little bit. So since that time, CPS has changed its rules a little bit. They extended the review period from 30 days to 45 days for both phase 1 and phase 2, if necessary. As a result, we think that the closing on -- now it's going to probably be like November, or maybe December or even January, is the more likely timeframe. Most of the other approvals have been received, but CPS is still under review, so that's a little bit of an update there.

Now since -- as Matt indicated and also in our news release we indicated, this is a -- electronics is now a discontinued operation, and that's a requirement under the accounting rules, as I understand. The focus of our discussion or comments will be only on aerospace, and it also changes the presentation of our financials pretty dramatically. And unfortunately, it's hard to really -- it makes the financials difficult to understand. So I'll try a little bit to give some perspective on the financials because until electronics is sold and our legacy costs are reduced or eliminated, it's going to be difficult to kind of see through the financials to the reality.

So the thing about -- the way that the reporting works as far as I understand is there are certain costs which are assigned to electronics and those are the costs that would appropriately go to the electronics business after it's sold. All other costs continue with Park. So Park continues to carry all those costs in its current financials, including Q2, even though a portion of those costs -- maybe a good portion of those costs will be reduced or eliminated after the sale is complete and after some timeframe, maybe 6 months to make those cost adjustments. So right now, we have kind of a storied P&L, at least for carrying costs in the continued ops portion of the deal reporting, which we really don't need, but that's just how the reporting works. So I just want you to understand that. So until all that clarifies, based upon the closing of the electronics sale occurring and the costs being adjusted, it's going to be hard to really see through the public reporting. So I just wanted to make that point. But I'll try to -- we'll try to help you to get some perspective nevertheless.

Let me just go through my notes here. I think, yes, I covered the fact that we're required to carry these costs. And again, costs can't just disappear, either they are assigned to electronics or they are retained by Park, we can't just say, well, those costs don't exist, not for SEC reporting anyway.

So I want to remind you that we had a -- we did a presentation on January 4, when we announced -- that would have been our -- I think it was third quarter results from last year, it's still posted on our website. In that presentation was a forecast for aerospace as a standalone business. We have not updated that forecast, and we're not doing that now. But I just wanted to bring you back to that forecast, you can look it up, it's still on our website. I'll try to remind you about some of the key components of it in the next few minutes, just to help you get some perspective. But that analysis was a pro forma analysis, so what did it assume.

It assumed that electronics had been sold and all those legacy costs had been reduced already. That's the assumption. That's why it's pro forma. And we explained that when we did -- when we presented this information on January 4, so that would, I think -- was made clear. But we don't have an apples-to-apples comparison now because our second quarter and the EBITDA second quarter that Matt referred to in his comments will not kind of match up or reconcile with the presentation that we gave on January 4. Again, we have not updated that presentation and we're not doing that at this time, but I thought we'd just refer to it for perspective.

So let's talk about our revenues to start with, because in the current fiscal year of this presentation, the fiscal year '19, we had forecasted estimated revenues of $50 million to $54 million, all right. So our revenues in Q1, this is -- we're only talking aerospace, right. We're talking about Park. The electronics business is a discontinued operation. So as Matt said, all comments relate to aerospace. Q1 revenues were $10.4 million, so that's certainly below that rate -- that run rate; Q2, $11.2 million, we just reported that. Now our estimate for Q3 is $12.25 million, that's pretty much all booked. Our estimate for Q4 is $14 million, maybe a little bit more than $14 million. So what's going on here? First of all, if we look at $12.25 million, that kind of just -- we annualize that if you follow me. I know it's a little confusing, but I'm trying to do my best to clarify and give perspective. If we analyze the third quarter, that gets us right to the bottom of the range of the sales forecast. If we analyze the fourth quarter, our estimate for the fourth quarter, that gets above the range, right. So why is that, what's going on?

So remember in our first quarter call, I told you that some of the business with the big OEMs, and I think I mentioned GE had moved to the right, so the fogger has moved to the right a little bit. And that's because the programs were ramping a little more slowly than we expected as predicted by the forecast we received. But this is aerospace, it's not electronics. Let's think about what that means, all right. So we're sole-source qualified on these programs. We're sole-sourced and sole-source qualified on these programs. There are planes sitting on the ramps, a lot of airplanes sitting on the ramps. A lot of customers are waiting for these airplanes.

So what's going to happen? Are they not going to deliver the airplanes? Of course, they're going to deliver the airplanes. They're waiting for engines. So everybody is scrambling. The engine manufacturer is scrambling to produce the engines, so these airplanes can be delivered to customers, which is the ultimate objective, I guess, right? You sell an airplane, including the engines to the customer, the customer pays for it, everybody is happy. Until that happens, nobody is happy. So there's a lot of urgency here.

So what did we think was going to happen? That it was just never going to happen? That doesn't make any sense. These are orders. These airplanes have been ordered. The customers are unhappy. They're waiting for airplanes. So of course, we're going to be playing catch up. Now we were not behind. We don't like being behind. But these engines are new technology, and sometimes new technology comes with challenges. It's good to be forward-looking and not just rely on old technology, right. But when you take on these challenges, new technology sometimes it could cause some delays. But anyway, so what happened now.

So we get the last, let's say, 3 or 4 weeks, we're notified that things are moving back to the left and pretty hard actually. So we're challenged, okay. So we're obviously in a position where we're going to need to make the adjustment, and we do. It is not easy, but that's what we do for a living here. We don't like say no, so we made the adjustment. So our forecast for Q3 and Q4 is based upon things moving pretty strongly to the left now, which when you think about it, had to happen. It's to be expected. This is not electronics, it's aerospace. Those airplanes have to get delivered. They're sitting on the ramp without engines. Customers aren't happy. Those airplanes have to get delivered. So it's just a matter of when, it wasn't a matter of if. And when -- I guess it happened already about a month ago when things started to move back to the left, the adjustments were made so that these airplanes get -- they get their engines and the engine manufacturers could ramp up their production, so the airplane manufacturers get the engines and their customers get their airplanes and everybody is happy.

So anyway, the Q4 run rate, like I said already, and that's the estimated run rate -- estimated revenue for Q4, that's already above the forecast level for fiscal '19, that was included in that January 4 presentation. Again, I'm trying to give you a perspective because the numbers, the way they're reported, can be a little confusing.

Now let's talk about EBITDA numbers because that's even a little bit more confusing. Again, enclosing the fact that their costs that are in our EBITDA, reported EBITDA, our second quarter EBITDA, that would not have been in the pro forma forecast that we gave you on January 4.

So -- but here is the good thing or here is the good thing. You can decide if it's a good thing. Here is the thing. We're basically tracking this forecast even though we're not updating the forecast, we're tracking the forecast. When you take into account in Q2 the revenues and you take into account these additional cost repairing, we're tracking the forecast. So I saw that when the stock opened, the trades traded down, and I'm thinking, boy, this reporting is a little confusing and we need to do what we can to try to help explain. But the bottom line that I would give you is that we're tracking this forecast we gave you on January 4, all right. And I know it's hard to see through that when you look at the second quarter report, but those are the facts as we know them, as I know them anyway.

So I just wanted to give you that comment -- commentary to help maybe a little bit of perspective because the reaction, at least when the stock opened, indicated that people thought maybe this was a disappointing result. I'm not sure I would agree with that conclusion. I mean, obviously, everybody has to make their own decision as to whether they buy or sell their stock, that's not -- I'm not recommending. I'm just commenting on the reaction. So anyway, all right. So let's keep going here.

Okay, what is behind the numbers. I'm going through my notes, sorry, I'm jumping around. I guess we already covered that. What's behind the numbers is mostly the GE business. Now to put things in perspective, I don't think we've really given you the GE revenues too many times in the past. But to put things in perspective, the Q3 revenues -- our Q3 revenues with GE based upon -- these are booked, will be twice, 2 extra revenues in Q1. Twice, double, that's in just 2 quarters. In Q4, they will be 2.5x based upon what we expect the revenues in Q1. So based upon the estimates we gave you just now for Q3 and Q4, the GE portion of those revenues and Q3 double Q1; Q4 2.5x Q1.

I just want to give you some perspective on the degree of the ramp that we're dealing with from GE. And again, I think other companies might say, look we'll do our best or sorry, or whatever, but we don't say those things. We just don't like failing, so we find a way to make the adjustment and we do. So that's a little more perspective. So let's go on to some other things here, and you might have some questions about the second quarter reported results, but I did my best to try to help with a little perspective. Okay.

And other news about M&A is, maybe some of you noticed -- I know some of you did because you called me, that GE announced that they're selling -- that they entered into an agreement to sell MRAS, which is the location that we principally supply into that does the thrust reversers and the sales to a company called ST Engineering in Singapore. So I don't want to comment too much because that's -- it's really for GE and ST to do the disclosure about this acquisition. But since it does have such a great impact on Park, because MRAS is such an important customer to Park, GE and MRAS, I'll tell you a few things.

First of all, I think it's a very good result for MRAS. Secondly, it was not a surprise to us at all. We were very plugged in. And I think it's a good and positive result for Park too. We know this company, ST Engineering. We kind of know them as ST Aerospace, so it's all part of the same group in Singapore. And we've been to their facilities a number of times. I have actually myself, I think, a couple of times. And we're hopeful that this acquisition if it does close and we hope it closes, will actually give -- present Park with additional opportunities, not so much in MRAS because remember we're sole-sourced in the programs at MRAS, so the opportunities in MRAS would be based upon MRAS getting new programs. But through the relationship between MRAS and ST Engineering, more opportunities for Park and ST Engineering/ST Aerospace in Singapore. These are nonengine opportunities. Aerospace, but not engine. So we think it's a good thing, and we're happy about it. Feel very good about the result.

So okay. A couple of other comments. Oh yes, there's something else that I'm a little surprised about. I think we have been working on this project for about a year. This is a GE Aviation project. It relates to a platform that we have only very small content on. It's a new platform. It's an exciting platform. And it seems like we're going to be -- it's still very likely that we're going to have this program. It's not for a nacelle or thrust reverser, it's a different part of the engine. It's a very major big program, a very big program, very significant revenues. I'm not going to go through the number now, but very significant revenues.

I would say, it's just starting now. It's a new program. You all have heard of it, I'm sure, but I don't want to go into what it is now, I think it's probably not appropriate to talk more in detail about this program. But it's very positive, very exciting. And this is -- see it's not an MRAS program, it's a GE Aviation program, but it's somehow connected with MRAS, and that's part of the way that we were able to apparently get this program. I was skeptical maybe 6 months ago because everybody and their brother was going after this program, but it seems like we are on the program. We haven't been formally told that but we got the POs for next year, so we're kind of thinking, I guess, that probably means we're getting the program. It's pretty exciting and it's some big revenue. This is a big program. It's an exciting engine program to be on, exiting aircraft program to be on as well. And we didn't have very much content in that -- on that engine or the aircraft use. MRAS doesn't do the nacelles and thrust reversers for that program. So that's interesting.

Also, this is maybe just some minor news, but I'll quickly cover it. I don't know if you noticed, but the Bombardier Global's 7500 was recently certified. The reason I mentioned that is that that aircraft uses the Passport 20 engine manufactured by GE, and that's a program that we're on for the thrust reversers and nacelle. So that's nice because that's a program we're already on and it's -- so it's nice that the airplane is moving along and getting certified. Oh, by the way, I should mention this other item I just -- Brian and I were talking about kind of a little bit more mysteriously without naming the program. That item is not included in that forecast that we gave you on January 4, that was not included -- the revenues from that program are not included, and they're significant like I said.

On Boeing, we haven't mentioned them by name before and we've referred to them as a large aircraft company. There is 3 different things we're working on with Boeing. They're all kind of niche things. We're not looking to do a bit of -- big structural prepreg for qualifications. It probably doesn't make sense for us. It's more of a niche company. And I think what I'll do since we're probably running a little late here is maybe we'll go into a little more detail during the next call. And I think also during our next call, we'll probably ask maybe Mark Esquivel, who is, I think, Senior Vice President of Aerospace, to join the call and maybe he can give us some more commentary about some of these aerospace activities. We're going to have to change his title by the way because after electronics is sold, he won't be Vice President of Aero -- Senior Vice President of Aerospace. It'll just be Park. Because we won't -- because Park will be an aerospace company at that point.

So let's see. Yes, so we -- new products, the lightning strike. We have another product that we're also working on with an MOU with GM, MRAS. Those are interesting opportunities for Park, not based upon MRAS. Those are the refined opportunities based upon taking those products to other customers now that -- at least with LSP, we're qualified in production for LSP with MRAS.

A couple other quick ones. The expansion, stay tuned, watch for announcements, please. We think we're going to need to announce something before the end of the calendar year, and the reason is that originally this thing has been kicked around for a while, and I know we've been talking about it for a while. It always has been discussed from the context of redundancy, and now it's really become a capacity issue as well. So we're not going to be able to hold off really much longer. And one of the reasons Matt and I are here is to review the expansion plan. Also, I just want to mention that watch out for a new product announcement. We were hoping to get it announced by this call, but we just didn't get there, so maybe next week. So that concludes our introductory comments, remarks. Operator, we're ready to take questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Sean Hannan with Needham & Company.

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Sean Kilian Flanagan Hannan, Needham & Company, LLC, Research Division - Senior Analyst of Smart Grid, Electronic Mfg Svcs, IT Components & Electronic Components [2]

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I just wanted to see if I could follow up on some of his commentary referencing the pro forma views provided earlier in the year. I realize that you folks aren't necessarily updating these views, but your commentary, I think you had indicated you're saying you're tracking to it. And at this point, I'm more focused now on fiscal '20, which is mainly a calendar '19 year. So would I or would The Street be interpreting correctly if we are thinking about how the activity has been picking up and pulling back to the left, keeping that in perspective, keeping the perspective of what your prior goals were? And also the scenario that there is some additional business that was not included within those pro forma estimates that, at least looking at those types of numbers, the degree of comfort should be very high with what you had put out this past January. If not, some potential to -- although no promises yet, but some potential that we could maybe even have a chance to exceed. Just to get some feedback and thoughts around that. I understand there's going to be plenty of caveats, but perspective would be great.

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [3]

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Yes, Sean, I'm really glad you asked that question because I should have covered the -- not just the '19 solely, I mean, I'm focusing on the short term. So we will update this forecast, and I should have covered that, and maybe we'll do it at the next call. I thought we'd wait until the electronics sale had been closed, but hopefully, that will be the case by the next call. And we'll go ahead and update the forecast. As far as fiscal '20, I'm looking at the forecast here of revenues $58 million to $63 million. We have just done a little bit of work on that the last couple of days, but we haven't done enough to reissue the forecast. We want to do a more thorough job. You're correct that that new program is a pretty big upside. But I also mentioned that it's already been booked for next year. And that's not that -- that amount was not in the forecast we provided in -- on January 4. But it's I think it was about $1 million for next year because it's just beginning to ramp. By the time we get to 2024, the volumes are quite significant, and it ramps kind of linearly from next year through -- and calendar '24, I'm talking about, sorry, that's when the -- by the calendar '24 that's when it peaks, and it peaks at a pretty high level. So it'll have some impact for the fiscal year '20, but it won't drive the needle that much. When you get to the out years, '21, '22, it starts to drive the needle much more. And our fiscal '23, which is calendar '24, that's when it will peak at a pretty high level. But -- so in terms of just our perspective on, let's say, the next year, I wouldn't give you any guidance above or below that range at this point. I don't think we're in a position to do that. That's -- we're not confirming the range, Sean, but we're saying the range seems kind of likely within reason. I guess that's the best we can do right now. But like I said, we will update this forecast. We'll redo the whole thing and

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Operator [4]

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Ladies and gentlemen, please stand-by. This conference call will resume momentarily. Once again, thank you for your patience and please stand-by.

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [5]

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It seems like we got cut off at some point, operator, and we're not hearing from the analyst that was asking the question. So why don't we go to another question at this point and maybe he'll dial back in, and we'll continue with his questions at that time.

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Operator [6]

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Our next question comes from [Leonard Cooper], a private investor.

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Unidentified Participant, [7]

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If you're confused, I am doubly confused. And I've just scribbled down certain words and I'd like your comments. One, Scorpion; and two, is Park involved in drones in any way? And then I wrote down China and then I wrote down personnel, do we lose people in this transfer of the electronics business to the Japanese firm?

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [8]

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Okay, [Leonard]. So Scorpion, that program we're -- I think we commented last time. It's been pretty quiet and my understanding is that Textron was out there trying to sell the program, trying to sell aircraft and I suspect it'll be pretty quiet until that happens because I think they've done all the work they need to do. This is -- again one of these awkward things where you really should be looking at the Textron information because I don't want do disclosure with Textron. But my understanding is until they actually get a buyer and sell airplanes, that the program will be fairly quiet for us. Drones. We do work on drones. We have for quite a while. And -- but we're not talking about the little drones that are bought by individuals. We're talking about mostly military drones, larger drones that are used for military purposes. And China, I'm not sure what you're asking about China and I'm not sure what you're asking about personnel. Could you elaborate on China -- you said China, what about China?

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Unidentified Participant, [9]

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Well, is the tension with China affecting Park?

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [10]

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Well, we're commenting on aerospace now. And in aerospace, I don't think so. The -- remember that we're on this -- a couple of Chinese aircraft programs through GE, or through MRAS. One is the ARJ, which is a Comac regional jet, which is in production, limited production, but in production, and we're selling it to that program. And the other one is the C919, which is an intended competitor to the single aisle, the A320 and 737. That program is still in development. But the -- we're on that program with the LEAP engine, that's a LEAP-1C engine. So we supplied some material into that program as they continue to do the development and go for certification. But we're not seeing any impact from, I mean, like the China tensions with trade discussions, not seeing any impact from that. And the last one was on personnel?

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Unidentified Participant, [11]

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Yes.

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [12]

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What about personnel?

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Unidentified Participant, [13]

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Do the electronics people go with this deal to the Japanese firm?

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [14]

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Yes, of course, they would. So all the people that work at the electronics locations, Arizona; probably California, and remember we have trading in California; Singapore and France, all those people end up working for AGC. And then there are some corporate people that aren't assigned to a particular location, that will be going to AGC and some will not. And that's all been worked through with AGC. All those details have been worked through with AGC and agreed to.

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Operator [15]

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And our next question comes from Brad Evans with Heartland.

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Bradford Alan Evans, Heartland Advisors, Inc. - SVP, Director of Equity Research and Portfolio Manager [16]

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Just with respect to your revenues that you're currently generating with Kratos, I'm assuming that most of that revenue is applicable to their TargeTron franchise -- their -- yes, their TargeTron franchise. And I'm curious whether, I mean, is that a correct assumption?

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [17]

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Right. I think that's -- really their businesses is drones or, I mean, aerial vehicles. What I'd like to do is next time -- next call maybe we'll get Mark on the call and he could talk a little bit more detail about some of these programs because I'm not sure I know exactly which programs. I know -- I understand that most of these drones, like you say, with Kratos. And I can get back to you individually, of course, as well. But I think it would be a good opportunity next time when we're -- after electronics is sold, that we're just an aerospace company. We can talk a little more if we -- give more information, more detail about some of the individual programs, and Kratos would be one of them.

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Bradford Alan Evans, Heartland Advisors, Inc. - SVP, Director of Equity Research and Portfolio Manager [18]

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I'd appreciate that because I know that if -- assuming, I mean, you're getting some reasonable revenue from them because they're in your top 5, so I would assume that's going towards their TargeTron franchise. But I'd be curious whether you have them specced into their tactical drone franchise, which is where they're expecting to see meaningful growth over the next several years?

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [19]

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Okay. I'll tell you what. We'll get back to you with more information, but we'll also try to cover that in the next call as well.

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Bradford Alan Evans, Heartland Advisors, Inc. - SVP, Director of Equity Research and Portfolio Manager [20]

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Could you just speak to just the broader pipeline of what you're seeing today in terms of new business opportunities? Can you just kind of -- I would appreciate if you could amplify what you're seeing there in terms of size and scope?

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [21]

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So we talked about GE, we talked about GE a lot and we've talked about Boeing now. I think what we need to do is, we need to kind of expand our presence and that's something we need to work on in terms of the overall market, covers the overall market. We're very focused and consumed on these large programs. We're focused and consumed on expanding the plan. And I don't think we've done a really good job of covering all the market opportunities. And I believe that there are opportunities -- well, first of all, at least, we are seeing opportunities. I don't want to make it sound like there are -- we're not seeing any of them. But I guess, what I'm -- my point is that I think there are opportunities that we're really not tapping into. We just don't have that presence in the market, but I think we should. So that's something we need to work on, we're working on it now. The -- my perspective is that Park is a pretty attractive supplier for the market, especially with the sale of electronics, because it makes us an aerospace-only focused company. And I think a lot of the market -- and it's not just speculation, I've been told, just looks at us differently than the competitors. The competitors have their own strengths and weaknesses. But I think a lot of companies in the market look at Park a little differently, and that's an advantage that I think we need to explore, you can take more advantage -- we need to take more advantage of. That help you with your question?

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Bradford Alan Evans, Heartland Advisors, Inc. - SVP, Director of Equity Research and Portfolio Manager [22]

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Well, I guess, I'd be curious -- I think if you could -- I know it's difficult to give -- to put numbers and names and platforms out there, but just it'd be helpful to kind of understand whether the opportunity set in terms of front-end engineering and prototyping whether you're seeing more opportunity or less than you were, say, 12 or 18 months ago?

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [23]

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Okay. Well, that's easy. I think it's definitely more. We get consumed with dealing with these big things. But nevertheless, I believe it's more. And going back to what I said earlier, I think it would be good for us and in maybe the next call just to go into these programs and opportunities in more detail. And there's always going to be a limitation as to how many names we can mention and numbers we can mention, but at least give more perspective because until now we've been in aerospace electronics so when we get to aerospace, we're usually talking about maybe 2 or 3 big customers and we really don't give much perspective on the rest of the market. And we have many more aerospace customers than we have electronics customers. I think we have over 100 active aerospace customers actually. And some are small, but that doesn't mean they're not important. So we probably have given us the storied view because of our time limitations in the past on these calls, we focused on GE, maybe even Boeing, maybe a little bit of Scorpion, Rockwell, things like that. But we're not getting into the details about the rest of the market, and the rest of the market is significant. It's not just those 3 or 4 companies.

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Bradford Alan Evans, Heartland Advisors, Inc. - SVP, Director of Equity Research and Portfolio Manager [24]

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Let me just ask 1 more question and I'll cede the floor. How do you view Park, the -- if -- as we move into -- if there was more investment on the DoD side in hypersonic technologies? How do you -- do you feel Park is positioned to participate in that market at all?

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [25]

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Okay. So it's something we're definitely watching and tracking and trying to find inroads into that area. So I think it's a little early for us to say that we're locked in an area, but it's something we're tracking, paying attention to, talking to people about and talking to the OEMs, the companies that are developing these technologies to be able to participate. And we're even -- when we talk about things like that, we also consider product development because in some cases we may need a different kind of product in order to tap into those markets.

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Operator [26]

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And our next question comes from Christopher Hillary with Roubaix Capital.

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Christopher Edmund Hillary, Roubaix Capital, LLC - CEO and Portfolio Manager [27]

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I just want to ask if you care to share any color today on how the M&A pipeline looks from your perspective, just given the significant cash balances you'll be carrying in the not too distant future.

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [28]

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We have been pretty active in the M&A area. It's been a juggling act for a small company because you're in the middle of the -- we've been working on the sale of electronics, and that was a big job for us. We're a small company by design, I think I explained that before. We don't want to have a bureaucracy, it's not our business model. But nevertheless, we have been looking at a number of opportunities and one in particular we spent quite a bit of time on, ended up, and that wasn't for us, but we did invest a lot of time, we were in that -- whatever, the last ground or something like that and ended up going to somebody else, which is probably a good result anyway. But it has been something we focus on. We -- I think we discuss it pretty much every day. We're looking at things, developing opportunities. I wouldn't say, right now, there's something imminent that we're going to announce the next month or 2 because you know how these things are. Before you get to announcement, there's a lot of work that's required before you can get to that point. So I wouldn't look for an announcement next month or 2, a big M&A transaction. We've looked at small companies as little as $5 million of revenue, and when I say looked at, these means -- this means, active discussions -- our active discussions and negotiations. And we've looked at quite -- much larger companies as well, again, active involvement and active engagement. Thank you. It's all aerospace, so I think you know that, but I just want to make sure everybody understands, everything we're looking at is in the aerospace area.

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Operator [29]

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And I'm not showing any further questions at this time. I would now like to turn the call back over to Brian Shore for any further remarks.

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Brian E. Shore, Park Electrochemical Corp. - Chairman & CEO [30]

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Thank you, operator. Yes, I don't know what happened in the middle of the call. Apparently, the call got interrupted or we just kind of went dead for a little while. And I think, Sean, maybe that interrupted our discussion a little bit. So if you want to call back, we can finish it up. But -- so I apologize for that little glitch. But thank you very much for dialing in. Thank you for your good questions. And feel free to call Matt and me, just -- you can reach out to us and Mel will find us. We're in Kansas right now. We'll be here the rest of the day. And I guess, that's it. So have a real nice day. And again, nice talking to you. We'll be in touch soon. Goodbye.

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Operator [31]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a wonderful day.