Park Aerospace Corp.
Q3 2019 Earnings Call Transcript

Published: 3 Jan 2019

[Operator:]

Good morning. My name is Chrystal. And I’ll be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corp Third Quarter Fiscal Year 2019 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there’ll be a question-and-answer session. [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:]

Thank you very much, operator. Good morning everybody. Happy New Year. This is Brian, of course. I have with me Matt Farabaugh, our CFO. And we're going to do today since we do have a lot of things to cover in terms of our introductory remarks is Matt suggested maybe he should skip reading through the supplementary financial information. However, it is -- that was posted on our website this morning. So I think you definitely want to refer to that information because some things that are in the news release but also some information not in the news release. So we're just going to go ahead. I'll get started with some commentary. Like I said, we do have number of things to cover. So we want to get moving and then we’ll get to our questions of course. So, okay, so again look up the finance supplement, financial information on our website. You'll find it there. Also, I wanted to mention something important which is that Park is presenting at the Needham Growth Conference which is I think our date is the 16th, January 16th and our time is 12

[Operator:]

[Operator Instructions] And our first question comes from [Nick Roope Estella] from NR Management. Your line is open.

[UnidentifiedAnalyst:]

Good morning. First of all, Happy New Year. And I want to congratulate you on achieving your short-term goals there, all goals welcome actually but a good job on that, and I appreciate a special dividend. So I just want to get back to the big picture on the acquisitions. And if you could maybe further characterize what the markets like? Is it -- and I'm assuming it's more like the seller's market right now. And are you looking for smaller things? If you could just give some more, clarify what exactly fit in good with the new Park and would you finance a potential acquisition or would you use the balance of the cash? Would you see Park ever being indebted again to achieve an acquisition strategy, okay, thank you?

[BrianShore:]

So on acquisitions, of course, size matters but I think our focus is more the strategic fit. What we're looking for is something that would be unique, different actually be added at the Park. We're not just looking for some -- more capacity or more revenue because we're thinking not just what it would look like for the next two years. We are looking at what it look like for the next 10 or 20 years. And that's really over a lot in terms of size. So we've been looking small even looking larger. When we potentially go into debt? I think the answer is yes. But it would have to be a very special opportunity for Park. We always had a very strong balance sheet and we liked having a strong balance sheet. It's nice to have it especially when the world is very volatile and very variable unpredictable. So reluctant to go into debt. I think if we did it would have to be something very special. And I think we'd be pretty conservative about the type of debt and how much debt we would take on. But I wouldn't rule it out completely. So it's hard to define what it is because except defined generally by saying it needs to be added at the Park; needs to be complementary to Park. And it needs to bring us something special, something different, something unique. And sometimes what that means is components. So we see a business that has two or three things that are unique and maybe it's missing a few things. So we need to fill those things in. The problem is that if a business has everything filled in the valuations are sometimes going to be not so good. The bankers when they do these deals, they're looking for a company that has an EBITDA history and everything else. Our experience with auctions in the last nine months is that the valuations were troubling. And I get the sense just a lot of money chasing these things and are not really being looked at strategically, they are being looked at from almost a banking perspective. Okay, what's the EBITDA? What are the synergies? And how does it accretive or not accretive and that's the end of it. And we just think that would be not good for Park kind of be responsible for Park. We've been after this for a long time and whatever we do we want to do the right thing. We don't want to do a foolish thing. We don't want to go for the short-term opportunity and three or four years from now, we scratch our head and thinking, boy, it looked good for a couple of years but now what do we have. We have something that really doesn't make sense for us. So I'm sorry to not be able to give you too much in terms of specifics, but it's hard for me to answer that question in terms of specifics. Because, again it always goes back to those same kind of general concepts. What's unique about this? What's different? What's special and how would it be additive to Park? How would it enhance Park? And those are tough questions that have to be asked and answered. And not by bankers either by people at Park that are going to have to live it and own it for many, many years.

[Operator:]

And our next question comes from Christopher Hillary from Roubaix Capital. Your line is open.

[ChristopherHillary:]

Good morning and Happy New Year. I just want to ask as it pertains to how you thought about the capital allocation. Could you update your thoughts on what you would anticipate your capital expenditures doing going forward? Do you feel like there's an upward bias or about the same or lower than what you would have anticipated 6 or 12 months ago?

[BrianShore:]

With the $19 million to $20 million, we announced $19 million; [Indiscernible] at $20 million that we have in mind for expansion. That's probably to take care of any major capital items in the near future. And that of course as assumes that thing could happen that we don't anticipate and expect right now. As we will explain in may be little more detailed in Needham conference, when we built this factory though we left and it was even explained a little bit in our news release. We left a space available for additional equipment. And as I mentioned we could actually double the incremental capacity from the expansion for what's called hot melt prepregs about $50 million. We could double that with another $4 million or $5 million investment. So if we feel that becomes necessary useful for Park that would be an additional expenditure. And that's something that's kind of we have in mind but has not-- we have not made a decision on that. And we probably won't for a couple years anyway. We'll see how things play out. And see what how we feel about our needs. So what we're doing now will put us in good stead for several years.

[ChristopherHillary:]

Then maybe another question just do you feel like you need to invest more in your sales force et al to address opportunities that you see giving your product offerings or do you feel like increased awareness is actually creating some pull towards your customers are asking you to meet some needs?

[BrianShore:]

Well, I know that was or question but I'd like to answer you both, it's true. We do need to invest more in our sales activity. I think that's, I agree with that, but I also believe that there's a lot of pull based upon what we're doing and the programs are on. We're in some important programs, some significant programs and that in itself gives a company like us a lot of credibility, increase that pull and it’s significant I think.

[Operator:]

Our next question comes from Leonard Cooper, A Private Investor. Your line is open.

[UnidentifiedAnalyst:]

Hi, Brian. Congratulation and Happy New Year. I have three words that I've written down here and I just wonder if they connect to Park in any way. Some of it I don't really know what it means but 3D printing is one; super conductivity and 5G. Do they mean anything to Park?

[BrianShore:]

All right. The second two probably not so much anymore since we sold our Electronics business, Len. 3D printing is something that is definitely on our radar screen. It's probably a little early for us and our applications, but it's something we're paying attention to and watching. And I'm talking about for making composite structures for aircraft or aerospace.

[UnidentifiedAnalyst:]

Okay. I'm scribbling, then the manpower requirements, there seems to be a shortage of skilled workers. How do we stand? Do we attract good people? And do we have enough?

[BrianShore:]

We don't have enough with the expansion we’ll be looking to hire some new people. A lot of our best people are homegrown and I think about some of the better people at Park, a lot of them are homegrown people who started on the factory floor. But recruiting is difficult probably for anybody these days. Kansas has often not be the location people would choose to relocate to. So that's a challenge for us sometimes, but the good news, the good side of the story is as Park progresses and has more successes, it's a kind of that's the best advertisement I think we can put out for people. In other words, so I know success breeds success I guess is what people sometimes say, but I think that as we do more and we have more successes we become more attractive as an employer. So we have a pretty good pool of manufacturing type people especially in the Newton, Kansas area, always looking to upgrade but we have a pretty good pool there. But it is a challenge I think for anybody right now to find the right people. End of Q&A

[Operator:]

Thank you. I am showing now further questions from our phone lines at this time. I'd now like to turn the conference back over to Mr. Shore for any closing remarks.

[Brian Shore:]

Okay. Well, thank you everybody. Actually call went quickly than I thought which is good. So I don't take up too much of your time. Like to wish you a Happy New Year and please if you have time tune in for the Needham webcast. It is available to everybody. It's not -- you don't have to be at the conference. And more information will be provided about that in the near future. Thanks again. Thank you very much. Happy New Year, everybody. And we will talk to you soon.

[Operator:]

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